About 2,000 Argentine protesters reacted to the verdict by taking to the streets in Buenos Aires on Tuesday, calling the plant "illegal".
However, Susana Ruiz Cerutti, a representative of the Argentinian foreign ministry, told reporters after the judgement: "We are satisfied."
Relations between the neighbours have been strained by the mill.
Argentina has claimed that pollution from the paper mill has damaged various economic sectors, including tourism and agriculture, and repeatedly called for it to be dismantled.
The Finnish-built Botnia plant, which pulps eucalyptus trees for paper, is located in an area commonly used for fishing, leisure and tourism.
"Our town, which depends on tourism is being destroyed," Mevia Segovia, an activist from the Argentine city of Gualeguaychu, which is near the river, told Al Jazeera.
"This summer our beach was contaminated, people who bathed developed skin rashes because of the chemicals from the paper mill."
Uruguay denies any contamination is caused by the plant, and accuses Argentina of prejudicing tourism and trade on its side of the river.
Luis Almagro, the Uruguayan foreign minister, said that "in environmental politics, Uruguay follows the most strict international standards".
He said that he would soon meet his Jorge Taiana, his Argentine counterpart, to discuss how to move forward, and to prepare for a meeting soon between the two nations' presidents.
Uruguayans hope that the court ruling will lead to the reopening of a bridge that crossed the river linking the two countries.
"We are against the roadblocks, as ordinary citizens we have nothing to do with all this, which is only turning good neighbours in enemies," Veronica Perez, a Uruguayan resident, told Al Jazeera.
But Argentine activists blocking the bridge have vowed not to give up their fight. Watching on a big screen beside their roadblock, many shouted and cried, complaining that the court had let them down.
"The only way they will get us out of here is through violence. We won't unblock the border until they get rid of the pulp mill," Segovia said.