"We do not believe that because Ms Ciccone named her act after the Virgin Mary that gives her the right to stop any other party from using the word 'madonna' as a title of their website."
The UN World Intellectual Property Organisation (WIPO) ruled that Dan Parisi, an American entrepreneur, had not registered the name in good faith.
Parisi bought the domain name in 1998 for $20,000 and used the site to feature sexually explicit photographs and text.
Celebrities such as Julia Roberts and Isabelle Adjani have also won cases against cybersquatters.
The WIPO panel found that Parisi "lacks rights or legitimate interests in the domain name".
But the 40-year-old claimed that Madonna had no greater right to the website than any other individual or organisation with the Madonna name.
The WIPO system allows those who believe they have the real right to a domain to get it back without having to take legal action.
Since the site was shut down last year Parisi has been posting information about the case, turning it into a forum campaigning for the rights of individual web users.
Sting in the tale
The website says: "We lost the WIPO case today. Our attorneys have asked us to keep quiet in regards to the decision until we figure what if anything we are going to do."
It adds: "She was named after the Virgin Mary as was her mother and hundreds of thousands of other people throughout the world over the past 2000 years.
"We do not believe that because Ms Ciccone named her act after the Virgin Mary that gives her the right to stop any other party from using the word 'madonna' as a title of their website."
Madonna has been enjoying a successful few months, with her album Music going to number one in more than 23 countries, including the UK and the US.
She has been confirmed as one of the performers at next month's MTV Europe awards in Stockholm, in which she has been nominated for three awards.
Dan Parisi claims that he was in the process of handing over the rights to the domain name to a US hospital, Madonna Rehabilitation, which has the domain name madonna.org, when the case started.
WIPO has adjudicated on more than 500 cases, with the plaintiff winning 84% of the cases, since it started last year.
British pop star Sting lost his case over the website sting.com because WIPO argued that his name was also a common English word and Sting was not his real name.
Earlier this month the BBC won its case to evict a cybersquatter using the domain name bbcnews.com.