The man, whose identity cannot be disclosed, had sought asylum in Australia on grounds that he would face persecution in his home country over his support for the Falung Gong spiritual movement.
He took his case to the Federal Court after a Refugee Review Tribunal found that his study of Falung Gong meditation, outlawed in China, was contrived to obtain a protection visa.
But the court's rejection of his appeal means he must return to China as soon as possible, or face deportation.
The man, who came to Australia in 1996, claims to have joined Falung Gong in China in 1994 and practiced with a Melbourne Falung Gong group from 1997.
He claimed that in China anyone associated with Falung Gong would be treated as a criminal and arrested, and said he feared persecution if forced to return.
Falung Gong practitioners preach truth, compassion and forbearance, and practise meditation.
But the court's rejection of his appeal means he must return to China as soon as possible or face deportation.
Labelling it an evil cult, China has banned the movement since 1999 and imprisoned many of its practitioners.
However,the Refugee Review Tribunal refused to accept that the Chinese applicant was a genuine or committed practitioner of Falung Gong.
A spokesman for the Melbourne's Falung Gong group, however, expressed disappointment over the rejection of the asylum appeal.
He said the idea that Falung Gong practitioners would not be persecuted in China unless they were genuine or committed to the movement, was not true.
"Anyone who is a practitioner and is involved in just practising or raising awareness is to be persecuted, its an official policy of the government," the spokesman said.