The home secretary, Theresa May, has been ordered to review the level of benefits paid to asylum seekers after the high court ruled that she acted unlawfully in freezing essential living needs payments.

The ruling is a victory for the charity Refugee Action, which campaigns to increase the support provided to those awaiting decisions about whether they can settle in Britain. Single asylum-seekers currently receive £36.62 a week, a sum that has not changed since 2011.

The judge, Mr Justice Popplewell, rejected as irrational the home secretary's decision last June not to raise essential needs payments and ordered her to announce a new benefit level by 9 August. The Home Office was also told to pay £40,000 in legal costs.

"She [May] failed to take reasonable steps to gather sufficient information to enable her to make a rational judgment in setting the asylum support rates for 2013-2014," Popplewell said in his judgment.

There are estimated to be more than 23,000 asylum-seekers in Britain, who having fled war, torture and persecution but are denied the right to work. The case is an embarrassing political setback for the government, which has been seeking to limit benefit rises and the availability of legal aid to non-British citizens.

Dave Garratt, the chief executive of Refugee Action,said: "Every day at Refugee Action we see the human impact of this unlawful Home Office policy which robs individuals and families of their dignity.

"The decision to take this judicial review was not taken lightly and followed extensive research and advocacy by Refugee Action and our partners across the sector. After five years of our evidence being ignored, we felt legal action was our only option.

"We urgently need to see the Home Office acting on this ground-breaking ruling by setting up a transparent and robust inquiry into the way asylum support rates are calculated. Once and for all let's put an end to these levels of poverty amongst some of the most vulnerable in Britain."

Refugee Action described the payments as "cripplingly low". It added: "Half of asylum-seekers surveyed couldn't buy enough food to feed themselves or their families. [Our] research also found that 43% of asylum-seekers miss a meal because they can't afford to eat while a shocking 88% don't have enough money to buy clothes."

Sonal Ghelani, a solicitor at the Migrants' Law Project, which supported the legal action, said: "In a careful and balanced judgment, the court has found that the home secretary has acted irrationally and therefore unlawfully in taking a decision to freeze asylum support rates for those seeking asylum for the third, and now fourth, year running.

"It is to be hoped that the home secretary will act urgently to review her decision and engage constructively with Refugee Action and its partners to reach a decision which is fair and respects the right to dignity of one of the most vulnerable groups in our society."

A Home Office spokesman said: "We are disappointed with the court's judgment. We are looking at all options, including appealing."