The court dismissed a government effort to preserve the ban in a controversial ruling on Wednesday.
Conservationists argue that the country's threatened rhino population will be even more vulnerable to poachers, while others say the move could reduce poaching by creating a legal source of supply.
A white rhino with its horn removed as an anti-poaching measure in South Africa
The move has been heavily criticised by animal protection organisations.
Teresa Telecky, Wildlife Director for Humane Society International, said: “This is a gravely disappointing move by the High Court of Pretoria that could not have come at a worse time for the survival of this species.
“Amidst a rhino poaching crisis and increased international efforts to reduce demand for rhino horn, this ruling will do nothing whatsoever to protect rhinos, and only serves to benefit those parties with vested interests who seek to commodify rhino horn, and who stand to profit greatly as a result.
“While only about 29,000 rhinos are left in the world, 1,215 were poached in South Africa alone in 2014.
“This is the year in which poaching rates will likely overtake the rhinos’ natural rate of reproduction; the tipping point towards extinction for these iconic animals.
“Rhinos are wild animals who need to be protected so that they may grace our planet for years to come, not be treated as a commodity to be bought and sold out of existence.”
HSI funds an anti-poaching project in South Africa and a nationwide rhino horn demand reduction program in Vietnam.
WildAid said that they were concerned that the court rejected the government's appeal, meaning that South Africa's moratorium on domestic trade in rhino horn was effectively lifted.
The animal protection group said that it was thrown out on a technicality related to incorrect government procedures.
Peter Knights, CEO of WildAid, said: “There is little, if any, consumer demand for rhino horn within South Africa, and we agree with the government that horn sold domestically will likely be laundered into the international market, increasing the already serious threat faced by rhinos.
“We urge them to take the correct procedural measures in a timely way in order to reinstate the moratorium.”
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The group said that there were prominent private rhino owners who contested the moratorium, hoping to attract east Asian citizens to South Africa to consume rhino horn in-country as a form of "medical tourism".
“Despite the fact that it is mostly keratin, rhino horn is believed by some to be a cure for serious illnesses," Knights said.
“Promotion of these disproven properties will not only increase demand in Asia, but customers also will be tempted to take their 'medicine' back with them or have it shipped out illegally.
“Facilitating such fraudulent ‘medical tourism’ would damage South Africa’s reputation at a time of increasing unemployment and economic uncertainty.”
On Thursday, official figures were released revealing that 1,175 rhinos were killed by poachers in South Africa last year - a slight decrease from 2014's figures.
The number of rhinos being killed for their horn has skyrocketed in the past decade. In 2008 less than 100 rhinos were poached.