The court's 6-3 ruling restricted the Environmental Protection Agency's (EPA) authority to regulate greenhouse gas emissions from existing coal- and gas-fired power plants under the landmark Clean Air Act.
Biden's administration is currently working on new regulations.
The court's six conservatives were in the majority in the decision authored by Chief Justice John Roberts, with the three progressives dissenting.
The ruling is likely to have implications beyond the EPA as it raises new legal questions about any big decisions made by federal agencies.
The Supreme Court's conservative majority has signalled ongoing skepticism toward expansive federal regulatory authority.
The justices overturned a 2021 decision by the US Court of Appeals for the District of Columbia Circuit that had struck down Republican former president Donald Trump's Affordable Clean Energy rule.
That regulation, which the Biden administration has said it has no intention to retain, would impose limits on a Clean Air Act provision called Section 111 that provides the EPA authority to regulate emissions from existing power plants.
The ruling was based on what is called the "major questions" legal doctrine that requires explicit congressional authorisation for action on issues of broad importance and societal impact.
The justices in January embraced that theory when it blocked the Biden administration's vaccine-or-test policy for larger businesses, a key element of its plan to combat the COVID-19 pandemic.
The decision will constrain the EPA's ability to issue any regulations on power plants that push for an ambitious shift in energy policy toward renewable sources.
As such, the ruling will hamstring the Biden administration's ability to curb the power sector's emissions - representing about a quarter of US greenhouse gases.
Roberts wrote that while capping emissions at a level that would force a country-wide energy transition might be a sensible policy solution "it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme".
A group of Republican-led US states led by major coal producer West Virginia asked the justices to limit the EPA's ability to regulate greenhouse gas emissions from existing power plants under the Clean Air Act.
Other challengers included coal companies and coal-friendly industry groups.
Coal is among the most greenhouse gas-intensive fuels.
Biden's administration wants the US power sector decarbonised by 2035.
The United States, behind only China in greenhouse gas emissions, is a pivotal player in efforts to combat climate change on a global basis.
