The appeal court agreed Erich Priebke, 84, and Karl Hass, 85, had assisted in the 1944 killing of 330 men and boys in the Ardeatine Caves near Rome.
The court also gave Priebke a life sentence for his part in the slaughter.
The two men were first convicted for their part in the war crime last year and initially sentenced to 15 and 10 years in jail respectively.
These sentences were later reduced and Priebke could have been free by May.
The defence team said it planned to challenge the appeal verdict in Italy's Supreme Court.
Defence lawyer Giosue Bruno Naso said: "This is a verdict made for public opinion."
Priebke addressed the court for almost an hour before the five judges retired to reach their verdict.
He told them: "I have been chosen to keep the memory of all the evils of that time [World War II] alive.
"It doesn't really matter who Erich Priebke is and what he has done. It only matters what he represents."
He added: "Even Argentina, to which I gave 50 years of my life, has issued an expulsion order and doesn't want me any more. Even Germany, where I was born, took away my passport and now wants to put me on trial for the things that it ordered me do 50 years ago."
Priebke was arrested after being extradited from Argentina in 1995.
His defence argued he had to take part in the round-up for the mass execution of face death himself.
The judges took eight hours to decide not to overturn both convictions.
Relatives of the victims of the massacre had packed the court's benches and cheered when the decision was announced.
Priebke will return to house arrest in a monastery near Rome, where he has been throughout the appeal. Hass remains free until the final appeal is heard.
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