Mr Assange has been living inside the Ecuadorian embassy in London for more than four years to avoid arrest over a 2010 rape accusation.
He had lodged a legal challenge following a decision by a United Nations working group in February that his confinement amounted to arbitrary detention.
But the appeal court said that after reviewing material in the case it found that Mr Assange was still a suspect.
An arrest warrant against Mr Assange had been upheld in May after he filed an appeal, arguing that Sweden must comply with the UN group’s findings that his deprivation of liberty was unlawful.
But the court of appeal said the findings of the UN working group were not binding on Swedish courts, adding that Mr Assange cannot be deemed to be unable to leave the embassy.
WikiLeaks points out that the British Government refuses to give any guarantees that Mr Assange will not be extradited to the United States if he leaves the embassy.
In a statement, the Swedish court of appeal said it “shares the assessment of the district court that there is still a risk that Julian Assange will flee or otherwise evade legal proceedings or a penalty.”
It added: “His stay, as such, is not to be regarded as an unlawful deprivation of liberty and shall not be given any importance in its own right in the assessment of proportionality.”
"The court of appeal also concurs with the assessment of the supreme court that Julian Assange's freedom of movement cannot be deemed to be restricted in practice in a way that is contrary to the European Convention."
"The United Nations has already determined that Mr Assange's six-year detention without charge is unlawful and that he must be released and compensated. Today's domestic decision shows that Sweden is not yet prepared to abide by its international obligations.
"Mr Assange will appeal the decision and remains confident that his indefinite and unlawful detention will cease and that those responsible will be brought to justice."