The Human Rights Act does not apply to private care homes in England and Wales, the Law Lords have ruled.
The decision could affect as many as 300,000 residents
The decision came in the case of an 84-year-old woman with Alzheimer's, known only as Mrs YL.
Her lawyers argued that her threatened eviction from a private home would violate her right to family life. Her care was council funded.
Her appeal was rejected by a 3-2 majority. The decision could affect as many as 300,000 care home residents.
Human rights minister Baroness Catherine Ashton said the government - which backed Mrs YL's case - was considering the implications of the judgement.
She added that she was inviting other supporters in the case to meet next week to discuss future options.
Charities Help the Aged and Age Concern said they were disappointed by the ruling, which they said opened elderly people to abuse, neglect and eviction.
They urged the government to get around the Law Lords decision by changing the law to give private care home residents the same rights as those in local authority homes.
Mrs YL would have protection under human rights law if she were in a home run by a local authority.
She has lived in the private care home since January last year when she was placed there by her local authority, Birmingham City Council.
The home, which cannot be named for legal reasons, is run by Southern Cross Healthcare, a private company, which wants to remove the woman because of disagreements with her relatives.
Mrs YL's solicitor, Yogi Amin of law firm Irwin Mitchell, said: "Given the importance of this issue, and the fact that it applies to so many elderly and disabled people in society, we intend to look at all options in continuing in this fight to have the Human Rights Act applied to cover the most vulnerable people in society."
Kate Jopling of Help the Aged said: "Their Lordships' decision leaves vulnerable older people open to neglect, abuse and eviction, without redress through the Human Rights Act.
"If we are to take any consolation from this case however, it is that their Lordships have now sent out a clear challenge to the government to rectify this horrendous anomaly through legislation."
Michelle Mitchell of Age Concern also urged the government to overturn the Law Lords' "catastrophic" decision.
She said: "What we're doing by this decision is sending a message that we really believe that you're second class citizens, that your rights don't matter as much as people in state care homes.
"It means that they don't get the protection that they deserve and sends an appalling message to the public at large about how much we value older people."
But Michael Bird from National Care Homes said: "The Human Rights Act was always intended to prevent abuses by the state, abuses by public bodies, not by private companies.
"It's a good decision because there is lots of existing legislation to protect the rights of residents of care homes and the Human Rights Act is a very blunt instrument never intended to cover these situations."
In January, three appeal judges rejected the idea that a private care home was exercising a public function when it looked after people referred and funded by the local authority.
But it said Mrs YL's case should be referred to the highest court possible because of its public importance.