Three judges in London rejected an appeal by campaigners who want an inquiry into the shootings in Malaya in December 1948.
The Court of Appeal ruling follows the High Court defeat of a challenge by relatives in September 2012 of a Government decision not to hold an inquiry.
British troops were fighting communist insurgents in the Malayan Emergency when 24 plantation workers were killed at Batang Kali.
Despite the appeal's dismissal, the families vowed to carry on their fight.
At a hearing last year, Michael Fordham QC, for four appellants - two of whom were at Batang Kali as children - said despite the passage of time it was important to find the truth of "historic wrongs" .
He said at least three of the soldiers and five villagers who were at Batang Kali were still alive. Oral evidence from living witnesses would be available to an inquiry and bodies could be disinterred.