The decision comes after two British citizens born on Diego Garcia, the largest island in the archipelago, insisted that the island should be under British control.
A British High Court judge temporarily blocked the government from transferring sovereignty across the Chagos Islands to Mauritius.
The last minute injunction on Thursday morning came just hours before the agreement was expected to be signed at a virtual ceremony with representatives of the Mauritius government.
The High Court decision was given after the suit was filed by Bernadette Dugas and Batris Pompe.
High Court Judge Julian Goose temporarily blocked the UK government from “conversing negotiations on the possibility of a transfer to a foreign government known as the Chagos Islands” in order to take a decisive or legally binding step.
“The defendant is to maintain British jurisdiction through the UK’s Indian Ocean territory, further up to order,” he said.
Another court hearing is set at 10:30am (09:30 GMT).
Earlier this year, Michael Pollack, a lawyer for the two citizens, said on his Chambers website that the government’s attempt to “give up” the islands without formal consultation with residents was a “continuation of their awful treatment by past authorities.”
“They remain the people with the closest connections to the islands, but their needs and hopes are ignored,” Pollack said.
The British, which had ruled the region since 1814, separated the Chagos Islands from Mauritius in 1965 and created the British Indian Ocean territory.
In the early 1970s, the government ousted around 1,500 residents to Mauritius and the Seychelles, giving way to Diego Garcia Air Force Base, the largest island.
In October, the government issued a draft agreement to hand the island to Mauritius and allow the UK and the US to continue using the Diego Garcia base under the 99 lease.
The government of US President Donald Trump, who was consulted by the contract, granted the approval. However, the final decision on the contract was delayed by changes in the Mauritius government, and reported last-minute negotiations over costs.
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