TORONTO -- An Ontario judge has ruled that the province cannot sell Hydro One, throwing the largest privatization in Canadian history into turmoil.

Mr. Justice Arthur Gans of the Ontario Superior Court ruled yesterday that the 1998 legislation creating the utility did not permit the government to sell it.

Hydro One, created through the breakup of Ontario Hydro, operates the second-largest electrical transmission system in North America, serving 1.2 million people.

The government announced last December that it was privatizing the company, and shares were set to go on sale in June to raise $5-billion.

Judge Gans's decision, rendered after two unions representing hydro workers challenged the privatization, will delay the sale for weeks and could even kill it.

"We never considered something like this," said an investment banker working on the share sale, which is expected to generate $113-million in brokerage fees. "It was like we shifted the engines to warp drive and found out Scotty had pulled the spark plugs, so everything went dead."

If the government continues the privatization, it must either amend the legislation or appeal the court decision.

Yesterday, Premier Ernie Eves, who is running in a by-election on May 2, said the province's Attorney-General is reviewing the ruling. But he acknowledged the Hydro One privatization will be delayed.

"Even if you wanted to, you couldn't change the law tomorrow morning at 9 o'clock," Mr. Eves said.

Investment bankers say the deal has gone too far to be stopped now, but several labour leaders and opposition politicians said the privatization should be stopped.

"Politically this is a major setback for the government," said Judy Darcy, head of the Canadian Union of Public Employees, one of the unions that challenged the Hydro One privatization in court. CUPE represents more than 13,000 workers at provincial hydro corporations.

"They tried to do privatization by stealth. They ought to go to the people for a mandate before they proceed with something like this."

Marilyn Churley, the deputy NDP leader, said her party will fight any attempt to amend the legislation.

"I think this is a signal to Ernie Eves and his new government that they should drop the plans for privatizing Hydro entirely," Ms. Churley said yesterday.

Liberal Leader Dalton McGuinty said Mr. Eves must have public consultations before any privatization.

Mr. Eves "could say no to Mike Harris, no to Bay Street brokers and yes to Ontario families and Ontario businesses, which have never, ever handed him a mandate to sell off Hydro One," Mr. McGuinty said.

Tom Adams, executive director of Energy Probe, a Toronto-based consumer and environmental research organization, said, "I think this is something of a turning point in the electricity restructuring."

Mr. Adams said the government should refer the Hydro One privatization to the Ontario Energy Board and let it decide if it should go forward. That would remove the political rhetoric from the process, he said.

The court challenge began on April 9 when CUPE and the Communications, Energy and Paperworkers Union filed a lawsuit arguing that the 1998 Electricity Act permitted the government only to hold and acquire shares in Hydro One. The legislation made no reference to selling the shares, the unions argued.

They also argued that Jim Wilson, the energy minister at the time, said the government had no plans to privatize Hydro One.

The government has not amended the legislation since, the unions argued, and it announced the privatization only in December.

Judge Gans "stressed that this is an asset that has been in public hands since 1906," said Steven Shrybman, an Ottawa lawyer who represents the unions. "If the government intended to sell something this important, that's been in public hands for this long, it should have made its intentions very clear to people, and it didn't."

The Hydro One deal is not related to the open market for electricity, which begins next month. That involves deregulating the price of electric power to reflect market conditions. However, the price for Hydro One's transmission services will remain regulated.