Polish-born Marcus Klingberg, 77, who is serving an 18-year sentence for passing information on biological warfare, had argued he is seriously ill and no longer a threat to national security.
The Supreme Court on Sunday said Klingberg, who has suffered several recent strokes, could unintentionally reveal damaging information.
Klingberg headed a research facility when he was arrested and secretly sentenced in 1983. The case surfaced in the British media in 1987.
and an Israeli news blackout was lifted in 1993.
Klingberg's lawyer, Avigdor Feldman, said he regretted the decision.
"The court raised the possibility that this information would come out of Klingberg without his knowledge and unintentionally," Feldman said. "This is an assumption I find difficult to accept."
The former Red Army colonel has suffered several strokes in recent months and his family and attorney say another one could be fatal.
Klingberg's friend, Avraham Kaldor, told Army Radio that Sunday's ruling was tantamount to a death sentence. The convicted spy sat in court with tears in his eyes.
Klingberg immigrated to Israel in 1948 and at the time of his arrest headed an important research facility south of Tel Aviv.
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