The denial from the Court of Appeals for the Armed Forces clears the way for the release of Lawrence Hutchins III. Hutchins' military attorney, Maj Babu Kaza, told U-T San Diego and the Los Angeles Times that Hutchins will be released today and reassigned.
The Navy can still appeal to the US Supreme Court or retry Hutchins.
Prosecutors said Hutchins waived his right to counsel at the time.
Hutchins led an eight-man squad accused of kidnapping an Iraqi man from his home in April 2006, marching him to a ditch and shooting him to death in the village of Hamdania.
Hutchins has said he thought the man who turned out to be a retired policeman, was an insurgent leader.