A FIFA ban would end Venezuela's hopes of reaching the 2006 World Cup finals and would also prevent the world's number five oil exporter from hosting international soccer events.
Rivals to soccer federation president Rafael Esquivel who is standing for re-election had frozen the election process by filing an appeal to the Supreme Court calling for a change in the way the poll was organised.
FIFA has warned Venezuela it faces suspension from international competition unless the Venezuelan Football Federation holds twice-postponed elections for a new president and executive by March 19.
However FIFA said on Monday that allowing an ordinary court to interfere in a matter governed by its international rules constituted a violation of its statutes.
On Tuesday the Venezuelan Supreme Court's Constitutional Chamber therefore annulled Friday's decision by its Electoral Chamber which had ordered the soccer federation elections to be held on March 17 under revised rules.
FIFA had said it could not recognise the revised electoral process ordered by the court.
Leading figures in Venezuelan soccer including federation chief Esquivel and popular national team coach Richard Paez welcomed Tuesday's about-turn by the Supreme Court.
They had made public appeals to the court to solve the dispute and avoid the FIFA ban.
'Thank God justice has been done...FIFA will now lift the threat of this possible ban' Esquivel told reporters.
He now expects the domestic soccer federation elections to go ahead in the way FIFA required before the March 19 deadline set by the sport's world governing body.
Magistrate Luisa Estela Morales president of the Supreme Court's Constitutional Chamber told reporters the court had decided the collective interests of Venezuelan soccer and its supporters should prevail over the individual interests of those seeking election in the federation.
Although Venezuela are ninth in the 10-nation South American group of the World Cup qualifying competition the team that has been for years the Cinderella of South American soccer has produced several sparkling performances recently.
Venezuela have won four of their 11 World Cup qualifiers and still have a chance of reaching the 2006 finals in Germany.
Their next qualifying game is against Colombia on March 26 and Paez said he was announcing his squad on Tuesday.