A controversial loyalist parade down a nationalist street in Portadown has been temporarily injuncted after a high court judge urged all sides to “step back from the abyss” and take responsible decisions for “the sake of everyone in Northern Ireland”.

The ruling was made amid rising fears that a parade could unleash fresh sectarian violence.

After a five-hour hearing at a special sitting of the high court, Justice Smyth issued an order temporarily suspending the parade, which was due to take place at 8am on Sunday, until a judicial review application can be fully heard.

She has also suspended the determination by the Parades Commission on Friday that the event could take place, albeit with restrictions on numbers.

However tensions remain with an appeal against her decision by loyalists to be heard at a second special hearing on Saturday night.

Smyth arrived at her conclusions after several attempts to coax the parties, the Loyalist Orange Order and the Garvaghy Road Residents Coalition, to reach a voluntary agreement.

After it was clear that was not possible, she said: “The level of mistrust between residents and Portadown Loyalist Lodge cannot be overstated. Neither side accepts any of the reassurances of the other.”

The march down Garvaghy Road has been banned for 28 years due to widespread sectarian violence in 1998 outside Drumcree church.

“It is also clear to me that this particular long-running dispute has the potential to escalate within Northern Ireland,” she said.

The court was sitting on Saturday following a last-minute legal challenge by the Garvaghy Road Residents Coalition.

Smyth urged parties to reach a voluntary agreement to delay the march, given few had time to digest the reasoning behind the Commission’s decision.

It was important “to reach an agreement for the sake of everyone in Northern Ireland, not just for your sake” to have the issues “properly aired” so that “everybody knows they’ve had a fair hearing”.

“Be big enough to step back from the abyss,” she told the parties in court.

This followed a high court ruling quashing the restrictions of the annual parade route.

The Portadown loyalist Orange Lodge was not represented at the hearing. But after a request from the judge for its view through the individual who had sought permission for the parade, the lodge made it clear it would not agree to suspending the procession.

Fears of clashes increased on Saturday after a request to the Commission for permission for a countermarch, a protest that, it was estimated, could be attended by up to 5,000 people, the court heard. That was later revised to 300.

On Friday night, the British prime minister, Andy Burnham, appealed to leaders to “work calmly” through the weekend while the Northern Ireland secretary, Chris Bryant, called for “cool heads”, saying Northern Ireland had “withstood many moments of sharp disagreement over the years” and must do so again.

Before her ruling, Smyth asked the parties in court, including the Police Service of Northern Ireland (PSNI) and the Parades Commission, to “consider carefully the very important issues to our society” raised in this case, and the importance that they were dealt with properly given the “importance of this case to community relations”.

She also noted that the issues of judicial review were of “such fundamental importance” that it could be unwise to hold a full hearing without all the facts.

Democratic Unionist MP Carla Lockhart insisted nationalist residents on the road had “nothing to fear” from the march on Sunday, but Sinn Féin leader Mary Lou McDonald described the decision as “utterly reckless”.

The Parades Commission has placed a number of restrictions on the procession, including an 8am start and limiting the number of participants to 35 people, but not placing any restrictions on the route.