The home secretary has failed in an attempt to strip an Australian terror suspect held at Guantanamo Bay of his right to British citizenship.
David Hicks has been held at Guantanamo Bay for three years
A solicitor for David Hicks, 30, said British diplomats would now have to lobby US authorities for his release.
Mr Hicks, a Muslim convert, was captured in Afghanistan in 2001.
The Court of Appeal upheld a High Court decision that there was "no power in law" to deny him his claim for British citizenship.
Born to a British mother who emigrated to Australia, Mr Hicks is from Adelaide. He sought a UK passport in the hope of securing his release.
He faces charges of conspiracy to commit war crimes. US authorities have also charged him with attempted murder and aiding the enemy.
Speaking after the Court of Appeal ruling, his solicitor Stephen Grosz said he would be making immediate representations to British officials to take up his client's case.
Mr Clarke had argued that Mr Hicks was entitled to British citizenship but said registration could be refused or withdrawn because of any involvement with al-Qaeda.
Mr Hicks' war crimes trial was due to start in November 2005 but a federal judge in the US suspended it while the US Supreme Court examined the legality of military tribunals created to try war crimes suspects.
Britain has managed to get all nine of its nationals held in the US base released.
This was after the UK government complained that the system there failed to uphold basic standards of international justice.
The Australian authorities, however, have consistently supported the process and have not lobbied Washington for Mr Hicks's release.
Responding to Wednesday's judgment, Amnesty International UK Campaigns director Tim Hancock said the UK authorities "should concentrate on the fact that Mr Hicks and hundreds of others are being held without charge or trial at Guantanamo Bay".
"The UK government should be pressing for Mr Hicks to be released if he is not granted a proper trial on the US mainland," he said.
"Similarly, the UK authorities ought to be making urgent representations on behalf of eight long-term residents of Britain who are also held at Guantanamo.