The judges ruled that McVey had breached the Equality Act's public sector equality duty when deciding in December 2012 to close the fund.
McVey, who was minister for disabled people at the time but is now minister for employment, was heavily criticised in the written judgment.
Lord Justice Elias said he was convinced that she was "sufficiently aware of the very real adverse consequences which closing the fund would have on the lives of many of the more severely disabled".
And Lord Justice Kitchin said he believed there was no evidence that McVey had "directed her mind to the need to advance equality of opportunity".
He added: "Nor is there evidence she considered the proposals having due regard to the need to minimise the particular disadvantages from which ILF users and other disabled persons suffer or the need to encourage such persons to live independently and to participate in public life and other activities."
McVey's constituency office has so far declined to comment, after being asked if she was considering resigning.
But a Department for Work and Pensions spokesman said: "It goes without saying that she is not considering her position."
He added: "She takes the comments very, very seriously, as indeed does the current minister for disabled people, Mike Penning."
Disabled People Against Cuts has called on McVey to resign in the wake of the judgment.
And when asked by Disability News Service if she should quit, the reaction on social media was overwhelmingly in favour of her doing so.
Paul Johnson, tweeting at @PaulJohnson1861, said: "After that stinging verdict from the judiciary, she should most definitely resign."
The disabled activist David Gillon, who tweets at @WTBDavidG, said: "DWP seem to have same contempt for ministerial responsibility as they do for their Equality Duty!"
LoveAnddaisypetals said on the DNS Facebook page: "Resign?! In any other job she'd get the sack! We, the people, pay her wages, surely we should sack her?"
And Robert Lynch, who tweets at @rcynic, said: "This woman has a total lack of compassion for others. She should go far in the Tory party!"
News provided by John Pring at www.disabilitynewsservice.com