A full consultation on merger is now likely to be rerun in November at a cost of pound;20,000.
The embarrassing reversal follows a legal challenge in the Court of Session by Martyn Imrie, a prospective Nicolson parent whose wife teaches at the secondary.
The authority argued the school board had been disestablished after mass parent resignations but Mr Imrie said two teacher members and a pupil constituted a viable quorum, a view shared by Lord MacLean in his judgment. The board had not been formally consulted, Lord MacLean said.
Both schools will now continue in the new session as separate entities, although a new headteacher, Kevin Trewartha, currently a Fife depute head, has been appointed to run the merged secondary. It would retain the Nicolson name.
Mr Trewartha has been offered a job as acting head of the much smaller Lews Castle School on a conserved pound;50,000 salary while the consultation takes place. On Wednesday, he said he would be taking time to consider the offer.
The council is honouring six other appointments made to the Nicolson, which will also be carried out on an acting basis. A package of voluntary retirements will be met but the council will have to go through a further round of appointments if the merger receives the go-ahead.
Donald Macdonald, the Nicolson's rector, and Alan Fraser, depute rector, both of whom were to lose their jobs, have been invited to continue. Dr Fraser is teachers' representative on the education committee and has publicly attacked the merger. Mr Macdonald has threatened legal action against the council after failing to secure the head's job.
Norman Macdonald, education convener, said the council had decided not to challenge Lord MacLean's ruling.
Mr Imrie was unhappy the matter was being treated as a minor infringement. "No one has had blame apportioned to them at all. There is to be no investigation to see if there was incompetence."