The city of Grenoble filed an appeal, but the French Supreme Administrative Court maintained the ban on full-body "burkini" swimsuits in public pools.
Grenoble approved all swimwear, including burkinis, last month, igniting a legal struggle with the government.
Burkinis are mostly worn by Muslim women to maintain modesty and support their beliefs.
However, the court stated that "selected exclusions to the regulations to suit religious demands" could not be allowed.
After a municipal court in Grenoble stayed the prohibition on the grounds that it gravely harmed the norm of neutrality in public services, the argument moved all the way to the Council of State.
Interior Minister Gérald Darmanin chimed in as well, calling the measure a "unacceptable provocation" that goes against French law.
Swimming costumes are strictly regulated in France, and religious expression in public areas is a contentious topic.
Burkini bans in state-run pools are also recommended for sanitary grounds. Men are often required to wear tight-fitting swimming trunks, a law that Grenoble sought to overturn unsuccessfully by allowing longer swimming shorts.
The burkini has been a source of controversy in France since 2016, when numerous local governments sought to ban it on beaches for breaking the country's fundamental separation of religion and state.
Although state employees are not permitted to wear religious symbols at work, Grenoble Mayor Eric Piolle claimed that this should not prevent consumers of public amenities, including as swimming pools, from dressing as they please.
The national government objected to his administration's efforts to loosen swimsuit laws, citing a statute approved last year to prevent "Islamist separatism."
Burkini critics believe that permitting it promotes a separatist view of French society and puts pressure on Muslim women to wear it. Marine Le Pen, a far-right leader, The burkini has been described by Le Pen as "Islamist propaganda dress."
Those in favour of permitting it argue that women should be able to cover their bodies if they so want, and that this does not reflect religious fanaticism.