The court's 3-2 vote on Tuesday cleared the way for Pinochet to be tried on the latest charges of human rights abuses during his 1973 to 1990 rule.
"The sentence that has been appealed has been confirmed," court secretary Carlos Meneses said, referring to Pinochet's appeal.
Pinochet remained at his countryside residence west of Santiago, where he will remain under house arrest during the trial. He has been there recovering from a stroke he suffered in December.
The supreme court ruling prompted applause and cheers from gathered relatives of alleged victims of Pinochet's government.
"We are happy, the entire world is happy," Lorena Pizarro, president of an association of relatives of dissidents who were killed, said. "Pinochet cannot continue to live in impunity."
A small group of Pinochet supporters shouted slogans interrupting the court secretary's announcement and were removed from the court by guards.
Pinochet toppled Chile's elected
leftwing government in 1973
Pinochet's chief lawyer, Pablo Rodriguez, said the house arrest of the former ruler "will be carried out as ordered by the court, but we will ask authorisation to transfer General Pinochet to a hospital in case of a new stroke".
He insisted that "this ruling does not respect General Pinochet's basic right to a just process".
Tuesday's ruling upheld the indictment and house arrest ordered on 13 December by Judge Juan Guzman, which had been questioned by Pinochet's defence lawyers, who claim he is unfit to stand trial because of his poor health.
Rodriguez, Pinochet's lawyer, said he has not yet decided on his next legal move.
Guzman charged Pinochet with nine kidnappings and one murder in the so-called Operation Condor, a joint plan by the governments that ruled several South American nations in the 1970s and 1980s to suppress dissent.
According to the charges filed by Guzman, seven of the kidnapping victims were seized in Argentina, one in Paraguay and one in Bolivia. One man was killed in Chile.
"We are happy, the entire world is happy. Pinochet cannot continue to live in impunity"
president of an association of relatives of slain Chilean dissidents
In 2002, the Chilean supreme court struck down an indictment filed by Guzman against Pinochet in another human-rights case, after doctors diagnosed the former dictator with a moderate case of dementia. Pinochet's lawyers insist his condition has worsened.
But judges have clearly changed their mind regarding Pinochet's health. Guzman has said he was influenced by an interview Pinochet gave to a Spanish-language TV station in Miami last year in which he appeared lucid.
Pinochet has several other legal cases pending. He is being investigated by a judge after the disclosure by a US Senate investigative committee that he kept up to $8 million in secret accounts at Riggs Bank in Washington.
He has also been stripped of the immunity from prosecution he enjoyed as former president after he was sued for the assassination of General Carlos Prats, his predecessor as Chilean army commander who opposed his 1973 coup.
Chilean society remains divided
over Pinochet's political legacy
Prats was killed in Argentina in 1974 along his wife, Sofia Cuthbert, by a bomb that blew up their car.
An Argentine judge who wants to question Pinochet has also requested Chilean courts to remove Pinochet's immunity and a ruling is expected this week. Chilean law requires the immunity to be separately removed in each case.