A challenge by lawyers for an Iranian man sent to the Manus Island processing centre last year sought to find the use of Papua New Guinea as a "regional processing country" for Australia unconstitutional.
The lawyers accused former immigration minister Chris Bowen of failing to legally designate Papua New Guinea as an asylum seeker processing centre and for sending arrivals to Manus Island and Nauru.
The High Court threw out the challenge on Wednesday morning, clearing Bowen and upholding the federal government's asylum seeker policy.
In its judgement the court upheld the "validity of the designation decision and the direction decision".
The court ruled that there was nothing to support the man's argument that the Minister failed to take into account "relevant considerations" before making the decisions.
"The Court dismissed the plaintiff's other grounds for challenging the decisions," it said.
The case can now be remitted for determination in the Federal Circuit Court of Australia.
Meanwhile, a push from the Australian Labor Party to reverse its support for offshore processing of asylum seekers has failed.
Labor MPs Melissa Parke and Anna Burke brought a motion criticising the conditions on Manus Island and Nauru and proposing to reject offshore processing in a caucus meeting on Tuesday, according to The Australian.
An alternative motion from Labor's immigration spokesman Richard Marles and Senator Sam Sastyari was put against Parke's motion, instead proposing better conditions at the current centres.
The latter resolution was adopted by the Labor caucus.
In response to the Labor caucus, Immigration and Border Protection Minister Scott Morrison said that the ALP's "heart had never been in it when it came to strong border protection measures".
"They just don't believe in these stronger policies and regardless of what their caucus decides today the Australian people will always know that if Labor were ever to be in government again that they would wilt, that they would weep, that they would roll over on offshore processing," Morrison said.
"They would turn back on turn backs and they would continue to honour the promise of people smugglers of permanent visas to this country.
"That is what is stopping the boats and the opposition frankly still doesn't get it."