Activist Okiya Omtatah and a host of NGOs challenged the allowance in court, saying it was done by PSC without the approval of the SRC.
The move saw each MP get about Sh1 million.
Mr Omtatah said the payments will cost taxpayers over Sh1.2 billion annually.
In a blow to legislators, a bench of three judges has directed Senate and National Assembly clerks to recover the millions already paid out to each lawmaker within one year.
The judges further faulted the Parliamentary Service Commission (PSC) for encroaching on the mandate of the Salaries and Remuneration Commission (SRC) by granting the MPs house allowance of Sh250,000 and backdating it to 2018. The move saw each MP get about Sh1 million.
