Egypt's Supreme Constitutional Court froze a presidential decree reinstating the Islamist-led parliament, hours after the lower house convened in defiance of the judiciary and military.
The top court's decision is expected to heighten a crisis that hasraged since President Mohamed Morsi, a former member of the powerful Muslim Brotherhood, issued the decree Sunday just eight days after taking office.
"The court ordered the freeze of the president's decree," a judicial source said, adding that it "ordered that its previous ruling be implemented."
Last month, the court ruled that certain articles in the law governing parliamentary elections were invalid, annulling the People's Assembly, or lower house.
The powerful Supreme Council of the Armed Forces (SCAF), which ruled after Hosni Mubarak was ousted in last year's popular uprising, then dissolved the house.
But on Sunday Morsi ordered the lower house to reconvene, highlighting the power struggle between the president, the top court and the SCAF.
Taking its cue from Morsi the People's Assembly convened on Tuesday.
"We are gathered today to review the court rulings, the ruling of the Supreme Constitutional Court," speaker Saad al-Katatni said.
"I want to stress, we are not contradicting the ruling, but looking at a mechanism for the implementation of the ruling of the respected court. There is no other agenda today," he added.
Morsi's decree was hailed by those who want to see the army return to barracks, but it was criticised by those who fear an Islamist monopolisation of power as a "constitutional coup."
Katatni said parliament had referred the case invalidating the house to the Court of Cassation.
Hundreds of people gathered in Cairo's Tahrir Square, hub of the revolution, to chant their support for Morsi, chanting "Down with the military." Opponents of the decree protested outside the presidential palace.
US Secretary of State Hillary Clinton -- which is due to visit Cairo on Saturday -- urged all parties to engage in dialogue.
"We urge that there be intensive dialogue among all of the stakeholders in order to ensure that there is clear path for them to be following," she said in Hanoi.
The Egyptian people should "get what they protested for and what they voted for, which is a fully elected government making the decisions for the country going forward," she added.
Islamist parties, including the Brotherhood's Freedom and Justice Party, which Morsi headed before becoming president, and Salafist parties attended Tuesday's parliamentary session.
Katatni insisted during a brief opening statement aired live on television that the house "respects the law and judicial rulings."
On Monday, the Supreme Constitutional Court rejected Morsi's decree, saying that all of its rulings were binding.
"All the rulings and decisions of the Supreme Constitutional Court are final and not subject to appeal ... and are binding for all state institutions," it said.
Several groups and politicians had criticised the court's June ruling as politically motivated.
The SCAF backed the court on Monday, saying the rule of law must be upheld.
It underlined the "importance of the constitution in light of the latest developments."
Islamists scored a crushing victory in three-stage parliamentary elections held from November, with the Muslim Brotherhood heading the lower house.
The dissolution of parliament took place just a day before the second round of presidential elections that saw Morsi become Egypt's first democratically chosen head of state.
Instead of being sworn in before parliament, the 60-year-old Morsi took the oath on June 30 before the constitutional court.
The presidency insisted on Monday that Morsi's decree "neither contradicts nor contravenes the ruling by the constitutional court."
The ruling does not need to be implemented immediately, said presidential spokesman Yasser Ali, arguing that the decision "takes into account the higher interest of the state and the people."
Washington lavishly supported Mubarak during his 30 years in power, but analysts say US officials will now have to work with multiple centres of power -- including a military seen as restricting Morsi's room for manoeuvre.
German Foreign Minister Guido Westerwelle said on a visit to Cairo that he was confident Egypt would resolve its growing power struggle.
"I have the impression that a solution can be found," Westerwelle told reporters.
"There is still no guarantee that the way towards democracy will be successful but we want to do what we can to ensure that it succeeds.
"The newly elected, first democratic president assured me that he does not aim to question the decision of the constitutional court but that this is rather about how to organise the ruling's implementation," he added.