Ship to Gaza spokesman Dror Feiler told AFP that the Finnish-flagged Estelle was in Israel's northern port of Haifa, still afloat but unfit to put to sea.
"Last time we had a person who checked the boat, it was maybe one year or nine months ago, the condition of the boat was not good, to put it mildly," he said in English by phone from his home in Sweden.
"It's in salt water and we don't know the condition of the engine, we don't know the condition of the sails," he said. "We will demand that the boat will be put into seaworthy condition so we can sail."
Israeli-born activist Feiler was one of 11 Swedish nationals on the vessel when the Israeli navy commandeered it in 2012 as it neared the coast of the blockaded Gaza Strip.
He had previously renounced his Israeli citizenship and held Swedish nationality.
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The Swedes, along with activists from Norway, Canada, Spain, Italy, Greece and Finland, were arrested and later deported.
In its ruling on Sunday the Supreme Court said the state impounded the ship illegally and awarded its owners legal costs of 40,000 shekels ($10,500, 9,400 euros).
"In light of everything that was said in the ruling, the judges... ordered the release of the ship immediately," a justice ministry statement said.
Feiler said Ship to Gaza would now file a claim for damages.
"They kept the boat for four years and now the court is stipulating that it was illegal so we shall try to get economic compensation," he said. "It's much larger (than the court expenses)."
Gaza has been under an Israeli blockade since 2006. It was tightened in 2007 after the Islamist group Hamas seized control in Gaza.
The Estelle voyage was one of several unsuccessful attempts to breach the cordon since 2010, when Israeli commandos killed 10 Turkish activists in a raid on a flotilla seeking to run the blockade.