The islanders vowed to fight the verdict. "We will continue the struggle. We will not give in," spokesman Olivier Bancoult said after the verdict on Thursday.
The former residents of the Chagos Islands, most of them coconut pickers descended from African slaves and Indian plantation workers, have lived thousands of miles away from their tropical homeland since they were removed in the late 1960s and early 1970s.
In recent years, a legal campaign to establish a right of return for the islanders and obtain compensation from the British government has gathered pace, but on Thursday a High Court judge rejected their claims.
In delivering his decision, Justice Duncan Ouseley said there was no legal basis to argue the islanders had been subjected to "unlawful exile".
"They are in a state of shock," Richard Gifford, a lawyer for the islanders, said of his clients after the ruling. "But when you have been kicked around for 30 years, you get a bit used to setbacks."
He said they would pursue their case at the Court of Appeal.
"They will certainly continue their struggle. It is certainly not the end of the road," Gifford said.
The entire population of the Chagos archipelago, which lies some 3520km (2200 miles) east of Africa and around 1600km (1000 miles) southwest of India, was relocated between 1967 and 1973.
Meanwhile, Britain leased Diego Garcia, the main island, to the United States and barred anyone from entering the archipelago except by permit.
The inhabitants - who numbered 2000 according to the islanders, 1000 according to the British government - were sent to the Seychelles or more frequently to Mauritius, two island nations off Africa's east coast.
"Their claim is about forced displacement. They did not go willingly. They were removed from these islands by the British government"
Lawyer acting for the islanders
Springboard to Iraq
Diego Garcia, the only US military base in the Indian Ocean, is a submarine re-supply station. B-2 stealth bombers flew missions over Iraq from the base, which was also used for US military strikes in Afghanistan and for the 1991 Desert Storm campaign against Saddam Hussein.
The Chagossians and their descendants - who now number around 5000 - obtained a November 2000 ruling overturning the 1971 ordinance that banned islanders from returning without permits.
But the British government immediately introduced a new ordinance, establishing a right to return for all the islands except Diego Garcia where the vast majority of islanders lived before their eviction.
Judge Duncan Ouseley also blocked their compensation claim, saying that although the 1971 ordinance had been overturned as unlawful, government officials had not known it was unlawful at the time.
However, Ouseley said he was "acutely conscious" of the position of at least some of the claimants.
"It does appear that, in the absence of unexpectedly compelling evidence to the contrary, at least some claimant Chagossians could show that they were treated shamefully by successive UK governments," he said.
"(The archipelago is) some rocks which will remain ours; there will be no indigenous population, except seagulls who have not yet got a committee"
UK government note, 1966
During one of the case hearings, a lawyer acting for the islanders, Robin Allen, said the move had left most of them destitute. Many were illiterate and skilled only in coconut-picking.
"Their claim is about forced displacement," Allen said. "They did not go willingly. They were removed from these islands by the British government."
He cited a government note from 1966, which referred to the islands as "some rocks which will remain ours; there will be no indigenous population, except seagulls who have not yet got a committee."
"They had to deny the existence of any permanent inhabitants, any population of people who lived there and had done so for generations," said Allen. "They had to deny - and to continue to deny to this day - any government obligations to those people."