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The appeals court said that allowing non-Muslims to use the word would "cause confusion in the community".
Christians argue that they have used the word in Malay for decades and that the ruling violates their rights.
The 2009 ruling sparked religious tensions and led to churches and mosques being attacked.
It came after the government said that a Catholic newspaper, The Herald, could not use the word in its Malay-language edition to describe the Christian God.
The newspaper sued, and a court ruled in their favour in December 2009. The government then launched an appeal.
'Disappointed and dismayed'
Chief Judge Mohamed Apandi Ali said on Monday: "The usage of the word Allah is not an integral part of the faith in Christianity."
"The usage of the word will cause confusion in the community," he added.
The Herald editor Reverend Lawrence Andrew said he was "disappointed and dismayed", and would appeal against the decision.
"It is a retrograde step in the development of law in relation to the fundamental liberty of religious minorities," he said.
The newspaper's supporters have argued that Malay-language Bibles have used Allah to refer to the Christian God since before Malaysia was formed as a federal state in 1963.
"Allah is a term in the Middle East and in Indonesia it is a term both for Christians and Muslims. You cannot say that in all of the sudden it is not an integral part. Malay language is a language that has many borrowed words, Allah also is a borrowed word."
However, some Muslim groups have said that the Christian use of the word Allah could be used to encourage Muslims to convert to Christianity.
"Allah is not a Malay word. If they say they want to use a Malay word they should use Tuhan instead of Allah," Zainul Rijal Abu Bakar, a lawyer representing the government, told the BBC.
Dozens of churches and a few Muslim prayer halls were attacked and burned in the wake of the 2009 ruling, highlighting the intensity of feeling about issues of ethnicity and faith in Malaysia.
The case has baffled Muslim scholars outside the country, where the use of the word Allah by Christians is not controversial, the BBC's Jennifer Pak reports from outside the court in Putrajaya.
Some Malaysians believe the governing Malay-Muslim party is using the case to boost its Islamic credentials among voters, our correspondent adds.
Malay Muslims make up almost two-thirds of the country's population, but there are large Hindu and Christian communities.
Prime Minister Najib Razak's coalition won elections in May, but it was the coalition's worst result in more than half a century in power.