LGBT activists are now holding a celebratory rally near the legislature building. Opponents are expected to respond to the ruling shortly.
Speaking to AFP, Chi said he is "100 percent confident" that the court will rule in favour of same-sex marriage.
Taiwan's pioneering gay rights campaigner, Chi Chia-wei, was one of the petitioners who brought the case to the constitutional court, culminating some 30 years of activism. The two were refused a marriage certificate at a local Taipei registration office.
Taipei city's Department of Civil affairs later filed a similar request for a constitutional interpretation of the issue after receiving a growing number of same-sex marriage requests since Chi's case, despite strong opposition from conservative groups.
"The provisions of Chapter 2 on Marriage of Part IV on Family of the Civil Code do not allow two persons of the same sex to create a permanent union of intimate and exclusive nature for the committed objective of managing a life together", the decision read.
"A marriage between one man and one woman has always been our tradition and changing it would not only create a serious moral problem but would also encourage social degeneration. This is obviously a gross legislative flaw", it said in a statement.More news: Donald Trump says Manchester Arena attack perpetrators are 'evil losers'
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At the heart of the case is a clause in Taiwan's Civil Code that an agreement to marry should be made between a man and a woman.
However, as well as huge pro-gay marriage rallies, hundreds of thousands have gathered to demonstrate against legalising same-sex unions.
"Amnesty International activists across the world will continue to urge Taiwan's government to say yes to equality".
Taiwan is seen as one of the most progressive societies in Asia when it comes to gay rights, and momentum has been gathering since President Tsai Ing-wen - who has openly supported marriage equality - came to power last May.
Both sides of same-sex marriage had debated in years on this subject.