David Blunkett has lost three appeals over rulings he was acting unlawfully when he refused accommodation to house homeless asylum seekers.
The Court of Appeal ruling follows a decision in the High Court.
A spokesman for the Home Office said the department was "disappointed" and indicated they would be appealing.
The case came about as a result of a rule that says people arriving in the UK must make their asylum within three days.
Failure to do so disqualifies them from a range of state help including housing and benefits.
The rule, Section 55 of the Nationality, Immigration and Asylum Act 2002, has come under fire because campaigners say its effect is to make people destitute.
The government has extended the time allowed for application so in effect people can claim asylum for up to three days after arriving in the UK.
Friday's ruling involved the test cases of Wayoka Limbuela, Binyam Tefera Tesema and Yusif
Mr Adam, from the Sudan, reportedly slept in a carpark for a month after arriving in the UK. He had entered Britain secretly before travelling by coach to London where he claimed asylum.
That was deemed by officials to be too late under the terms of S55.
In the case of Mr Limbuela, the Angolan claimed asylum the day after arriving in the UK but was refused and spent two nights outside a police station without food before "interim relief" was granted.
The Court of Appeal decision was welcomed by campaigners from homeless charity Shelter.
The organisation's director Adam Sampson said: "This judgment is a victory for very vulnerable people who are in desperate need with nowhere to turn.
"Section 55 is threatening to greatly increase the number of homeless people on the streets - undermining the government's own successes
in tackling rough sleeping."
He added that he hoped the Home Office would now implement the court's guidance and use the opportunity to take another look at S55.
For the Refugee Council, Maeve Sherlock said she wanted S55 scrapped - that would allow all sides to concentrate on getting fair asylum decisions delivered rapidly.
But in a statement the Home Office insisted that the "basic thrust" of its policy had been "vindicated".
A spokesman said the department had decided to go to the House of Lords on the issue.
"The essential point of section 55 is that we are not prepared to use taxpayers' money on supporting people who make speculative asylum claims or who have some alternative source of support."
The spokesman added that although S55 was a "tough measure" there were "safeguards" to protect the vulnerable.
"Since last December those who apply for asylum within three days of entering the country have normally been considered to have applied as soon as reasonably practicable and have been given support.
"We think this strikes the right balance between fulfilling our obligations to genuine asylum seekers and protecting the system against abuse."
Friday's rulings are test cases follow a number of high profile clashes between Mr Blunkett and the judiciary.