FIFA said on Friday that the Valais cantonal court had ruled that Sion can no longer field six players signed during the ban in the summer, a decision seen as a setback to the club's attempts to get reinstated to the Europa League through a separate lawsuit.
It could also leave Sion open to further sanctions and a possible loss of points from matches in which the players were fielded.
FIFA and UEFA statutes state that all parties must use sporting tribunals to settle disputes, the highest of these being the Court of Arbitration for Sport (CAS).
The case began when Sion signed six new players in the summer despite being subject to a transfer ban imposed after FIFA found the club guilty of poaching Egyptian goalkeeper Essam Al Hadari from Cairo's Al Ahli in 2008.
Initially barred by the Swiss Football League (SLF), the six players - Stefan Glarner, Jose Goncalves, Mario Mutsch, Pascal Feindouno, Billy Ketkeophomphone and Gabri - won the right to play after taking their case to a local court in the town of Martigny.
This prompted the SLF to lift the ban.
However, on Thursday, that decision was over-ruled by a higher court following an appeal by FIFA and the SLF.
"The Valais cantonal court in Sion overturned the decision of the Civil Court of Martigny and St. Maurice of August 3 in its entirety and fully upheld the appeal submitted by FIFA and the Swiss Football League," said FIFA in a statement.
"The Cantonal Court has thus indirectly taken the same view as FIFA and the SFL and its ruling has indirectly confirmed the legality of the transfer ban FIFA imposed on Olympique des Alpes (Sion)."
FIFA recognised the original decision in Martigny had "resulted in numerous further proceedings as well as uncertainty with regard to the fielding of the players in national and international football."
Sion made no mention of the outcome on its web page, which had trumpeted the club's earlier court successes.
The case came into the international spotlight when Sion fielded the six players in a Europa League qualifying tie against Scottish club Celtic and won 3-1 on aggregate.
UEFA ruled the players ineligible, expelled Sion from the competition and replaced them with Celtic.
Sion then won an injunction at another court, in Vaud canton where UEFA headquarters is based, ordering the club's reinstatement to the competition.
UEFA said it could not comply but was fined and its president Michel Platini, later described as a "court jester" by Sion President Christian Constantin, appeared before a public prosecutor to explain why the ruling had not been implemented.
Under pressure from the court, UEFA then drew up several plans for incorporating Sion into the Europa League, all of which would have thrown the competition into chaos.
Swiss media suggested that Sion could now lose all points from matches in which the six players took part.
