The Colorado commission's "hostility was inconsistent with the First Amendment's guarantee that our laws be applied in a manner that is neutral toward religion", Justice Anthony Kennedy wrote in an 18-page majority opinion.
The verdict said the commission had shown "clear hostility" and implied religious beliefs "are less than fully welcome in Colorado's business community".
In Monday's ruling, Justice Anthony Kennedy wrote that the commission's actions "showed elements of a clear and impermissible hostility toward the honest religious beliefs motivating his objection". The couple filed a complaint with the Commission, which found that Phillips had discriminated against them based on their sexual orientation. Supreme Court, which could decide this month whether to hear the case.
"The Church of Jesus Christ of Latter-day Saints welcomes today's Supreme Court decision", church spokesman Eric Hawkins said.
When arguments were held before the court in December, President Donald Trump's administration spoke in support of Phillips.
The gay couple at the center of the story, David Mullins and Charlie Craig, were married legally in MA, but wanted the cake baked for their wedding reception in Colorado in 2012.
"In this case and others, the Department of Justice will continue to vigorously defend the free speech and religious freedom First Amendment rights of all Americans", he added.
Justice Ginsburg wrote that she "strongly disagree [d]" with the Court's decision.
When Mullins, along with Craig and his mother, arrived at the shop, bakery owner Jack Phillips greeted them politely, but, as soon as he realized who the wedding cake was for, Phillips instantly knew this was "not a cake that I can make".
"I didn't want to use my artistic talents to create something that went against my Christian faith", he said in an interview with CNN a year ago, noting that he has also declined to make cakes to celebrate Halloween.
Shunning customers based on their sexual orientation or gender identities is still illegal in or - and the Supreme Court's decision does nothing to change that, the group said during a news conference in downtown Portland.
The court's other two Jewish justices, Elena Kagan and Stephen Breyer, sided with the majority.
Colorado and Oregon are among 19 states that forbid discrimination based on a person's sexual orientation or gender identity, according to Basic Rights Oregon and news reports. "Religious believers and same-sex couples each argue that a fundamental component of their identity, and the conduct that flows from that identity, should be left to each individual, free of all nonessential regulation". Phillips was told that he must make wedding cakes on an equal basis, but he chose to suspend this part of his business.
Kennedy reasoned that Phillips, in refusing to create a same-sex wedding cake, had good reason to believe he was within his rights.
"I tried to respectfully apologize that I couldn't create this cake", he said.