The court's liberal wing issued a bitter dissent, and predicted the decision will broadly impair the government's ability to protect the public.
Tuesday's decision is only the latest in a stream of cases in which a 5-4 majority, made up of the court's three conservatives and two moderate conservatives, have curbed Washington's power in favor of the states.
In the underlying case which brought the decision, South Carolina Maritime Services Inc. asked the state ports authority five times for permission to berth a cruise ship, the M/V Tropic Sea, in Charleston, and was refused each time.
Maritime Services wanted to use Charleston as a point of origin for the vessel's planned cruises.
Some of the Tropic Sea's planned cruises would stop in the Bahamas, while others would merely sail around in international waters before returning to Charleston.
Passengers would be permitted to gamble.
The South Carolina State Ports Authority consistently refused permission to base the ship in Charleston, saying it had a policy of denying berths there to vessels whose primary purpose was gambling.
But in its complaint to the Federal Maritime Commission, Maritime Services alleged that the authority had allowed two Carnival Cruise Line ships to use Charleston, even though there was gambling aboard those vessels.
That, Maritime Commission alleged, was discriminatory treatment in violation of the federal Shipping Act.
The company asked the FMC to seek a federal court order and injunction to force the ports authority to grant Tropic Seas a berth.
The company also asked the agency to order the authority to pay it reparations.
The complaint was referred to an FMC administrative law judge, but the judge ruled that the authority was immune from the complaint under the 11th Amendment, and dismissed the case.
The 11th Amendment says the states have sovereign immunity from lawsuits brought by citizens in other states, but the courts have interpreted that to give the states a broad immunity from lawsuit.
In the Tropic Seas case, however, the FMC eventually ruled that the states' immunity applied to judicial proceedings, not to executive branch agencies.
That ruling was reversed by a federal appeals court, and the FMC asked the Supreme Court for review.
The justices heard argument in the case last February, and Tuesday upheld the appeals court.
Writing for the narrow majority, Justice Clarence Thomas said that while the country's "dual sovereignty" of state and federal governments might not be "a model of administrative convenience ... that is not its purpose."
The "balance of power" between federal and state governments was designed to protect "our fundamental liberties," Thomas said.
"By guarding against encroachments by the federal government on fundamental aspects of state sovereignty, such as sovereign immunity, we strive to maintain the balance of power embodied in our Constitution and thus to 'reduce the risk of tyranny and abuse from either front,'" Thomas said.
"Although the Framers likely did not envision the intrusion on state sovereignty at issue in today's case," he added, "we are nonetheless confident that it is contrary to their constitutional design ... "
Dissents are not normally read from the bench, but Justice Stephen Breyer read his Tuesday in language not normally heard in the staid Supreme Court.
"Where does the majority find its constitutional prohibition" against federal agency action regarding the states, Breyer asked. "Not in the Constitution's text, which, it concedes, says not a word about it. Not in history, nor in tradition."
Instead, the majority relies on such phrases as "state dignity," "plan of the (constitutional) convention" and "system of federalism," he said.
Breyer asked why a private citizen complaint to an administrative agency about a state is any more of an affront to state dignity than a complaint to Congress.
In the majority's "readiness to find in silences, in 18th century absences, in broad interpretation from highly abstract non-textual concepts" a new state immunity, the Supreme Court has departed from a constitutional understanding that it has held for more than 60 years, Breyer said.
Moreover, the majority's opinion "may well impede the federal government as it seeks to enforce against state employers laws designed to protect worker health and safety; as it seeks to enforce against state hospitals legal procedures designed to protect patients; as it seeks to enforce against state commercial (or port) authorities laws and procedures designed to protect commerce or, for that matter ... to protect national security."
(No. 01-46, FMC vs. S.C. State Ports Authority et al)
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