Interior minister Gerald Darmanin has welcomed the verdict as a "victory" for France's secular values.
France's highest administrative court has upheld a nationwide ban on the wearing of "burkini" swimming costumes in public pools.
Authorities in Grenoble had challenged the ban on the full-body swimsuit, which is typically worn by some Muslim women to uphold their faith.
The city's municipal council had sparked nationwide controversy in May when it relaxed its rules on the swimwear allowed in public pools.
But the French Conseil d’Etat said on Tuesday allowing the burkini would "undermine the principle of neutrality of public services".
Grenoble mayor Eric Piolle has argued that people using public services, such as swimming pools, should be allowed to dress as they please.
But opponents said the policy violated France's core secular value that religion cannot be used to inform decisions or policies.
Judges at the Conseil d’Etat ruled in favour of the Isere prefecture and confirmed that the new swimwear regulations in Grenoble had only aimed "to satisfy a religious demand".
"The very specific derogation made ...is likely to affect the proper functioning of the public service and the equal treatment of users," the court said.
French Interior Minister Gérald Darmanin wrote on Twitter that the ruling was "a victory for the law of separatism, for secularism and beyond, for the whole Republic."
A local court in Grenoble had previously ruled in favour of the burkini ban, stating that people should be able to "free themselves from this rule for religious purposes".
Since 2016, several local French authorities have attempted to outlaw the wearing of the burkini in public places.
Far-right leader Marine Le Pen has condemned the swimsuit as "clothing of Islamist propaganda" and has called for more regulation.
But in 2019, authorities in the northwestern city of Rennes quietly updated its pool hygiene policies to allow burkinis and other types of swimwear.