The top panel's decision is expected just days after lawmakers overwhelmingly authorized impeachment proceedings against Rousseff, plunging Brazil into deep political crisis.
Rousseff had named Lula -- her predecessor and mentor -- as chief of staff on March 16, sparing him possible arrest for corruption and betting on his political prowess to save her.
The controversial appointment, which has been temporarily blocked by a Supreme Court judge, would give Lula ministerial immunity from trial in criminal court on charges related to a massive corruption scandal at state oil company Petrobras.
Lula, a left-wing icon and founder of the ruling Workers' Party, is accused of accepting a luxury condo and a country home as bribes from construction companies caught up in the multibillion-dollar graft scandal that has upended Brazilian politics.
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Rousseff, fighting for political survival, had enlisted the charismatic Lula to spearhead an intense lobbying campaign for votes in the lower house of Congress, which on Sunday authorized the Senate to open an impeachment trial against her.
"I think that at this stage, whether or not Lula enters the government won't make a big difference," said political analyst Sergio Praca.
"A lot of things have happened these past few weeks and the fact that he was not authorized to take up his post caused a shock, a surprise, that had giant consequences" for Rousseff's government, he added.
Lula made three unsuccessful presidential bids from 1989 to 1998, each time chipping away at the establishment parties and the idea that a poor, uneducated labor leader could never be president of Brazil. The fourth time, in 2002, he succeeded, taking office on January 1, 2003.
When he stepped down after two terms, he basked in 80 percent popularity ratings.