A weekly demonstration has taken place at Belfast City Hall every Saturday since the council decision in December to limit the flying of the Union flag to 18 designated days.
Some protestors returning from the demonstration to east Belfast passed the Short Strand interface, where violence broke out and a number of houses were damaged last month.
The resident, who was granted anonymity at the start of proceedings, claimed the protests should be treated as parades, making them an offence if the Parades Commission is not notified.
Under the terms of the Public Processions (NI) Act 1998, which was established following major disorder across Northern Ireland linked to the Drumcree dispute, notification of parades must be given to the Parades Commission.
On Friday, the applicant sought leave to apply for a judicial review of the actions of the PSNI in their policing operation surrounding the protests and of the Secretary of State for her refusal to prohibit them.
Barrister Karen Quinlivan QC said the legislation was being repeatedly violated.
"It's our case that the police response has effectively facilitated and encouraged a wholesale bypass of the legislative scheme put in place by Parliament to deal with contentious parades in Northern Ireland," she claimed.
Every single participant in that march is engaged in illegal activity. Every single participant ought to be arrested and prosecuted for breach of the legislation.
Karen Quinlivan, QC
Ms Quinlivan questioned why no action was being taken against organisers appearing on television shows and in the press.
"It's one thing for loyalists to flout the law, it's another thing for the police to facilitate that," she added.
Solicitor Padraig Ó Muirigh said his client felt he had "no alternative" but to bring the case to the High Court.
"We've had two months now of disorder and illegal parades through this area.
"This could have been prevented from going to court if they had a different policing strategy in relation to these illegal parades or indeed an intervention from the Secretary of State," he explained.
Mr Justice Treacy said the situation appeared to be improving, and expressed concern that court proceedings could be counter-productive.
But Ms Quinlivan replied that evidence shows things are getting worse rather than better.
"People are feeling more and more besieged, people are feeling more and more threatened," she said.
A statement from Sinn Féin's Niall Ó Donnghaile - who appeared in court with his party colleague Alex Maskey - was read, in which the local councillor said residents feel unsupported by police.
Tony McGleenan QC, representing the PSNI and Secretary of State, said because the Parades Commission had not been made aware of the demonstrations, the challenge fell outside the governing legislation.
It's quite wrong to say the police are turning a blind eye to illegality and facilitating public disorder.
Tony McGleenan, QC
He revealed that 128 officers have been injured during violence and 181 people have been arrested, with 128 charged.
"Police have devoted massive resources in dealing with difficulties since 3 December," he said.
Mr Justice Treacy ruled an arguable case had been established against both the PSNI and Secretary of State.
"This case does raise important points both in relation to the obligations on the PSNI and also on the Secretary of State," he added.
He granted leave to apply for a judicial review and listed the case for a full two-day hearing in April.
Mr Maskey welcomed the decision and said he believes the Short Strand community will be satisfied with the ruling.
"While everybody hopes that these marches will be brought to an end, this community cannot go on being affected in such a manner and have taken action in the courts.
"It is now abundantly clear from this decision that both the PSNI Chief Constable and the British Secretary of State have a case to answer. It is a disgrace that that Short Strand residents have had to endure this level of intimidation and disruption on an ongoing basis," the Sinn Féin MLA for South Belfast added.