Tokyo's High Court has rejected claims for compensation from nearly 200 Chinese victims of biological warfare experiments in World War II.
The Chinese survivors have also demanded an apology
It upheld the ruling of a lower court, which acknowledged Japan's involvement in spreading disease in 1940s China.
But the judge said the issue of reparation had already been resolved by international treaties.
The case has been rumbling on for eight years, but this ruling comes amid worsening ties between Japan and China.
The two rivals have been arguing over Japanese history textbooks and access to resources in a disputed area of the East China Sea.
The BBC's Chris Hogg says those seeking compensation and a formal apology will now take their case to the Supreme Court.
They are also set to ask the Chinese government to intervene on their behalf, and will take their case to the United Nations if necessary, they told our correspondent.
The experiments were carried out by a secret unit of the Japanese Imperial Army in the puppet state of Manchuria in the early 1940s.
At earlier hearings, former veterans confessed they had taken part in dissections of prisoners who were still alive.
Anthrax, cholera and other diseases were cultivated at the unit headquarters in Harbin in China.
Plague-infected fleas were dropped over villages, and bombs and flame-throwers were tested on prisoners.
Some of the 180 plaintives - mainly Chinese victims and relatives of those who died - told the court their communities had been ravaged by disease after Japanese planes flew overhead.
In the 2002 ruling, judges found that Japan had contravened the Hague and Geneva Conventions by spreading infectious diseases.
That embarrassed the government, which had always dismissed the allegations.
But the court refused the claims for compensation and an apology, arguing that all reparation issues had been settled between governments by international peace treaties.