The decision comes after months-long turf war between LG Najeeb Jung and Kejriwal for the reins of Delhi.
A bench of Chief Justice G Rohini and Justice Jayant Nath dismissed AAP Government's plea challenging the Centre's May 21, 2015, notification giving absolute powers to LG in appointing bureaucrats in the national capital.
The court also quashed several notifications issued by Kejriwal after returning to power last year, saying they were illegal as they were issued without concurrence of LG.
After pronouncement of the verdict, the Delhi Government's senior standing counsel Rahul Mehra said they will immediately file a Special Leave Petition against the judgement in the Supreme Court.