He was sentenced in 2007 on first-degree murder and second-degree sexual assault charges after he told detectives that he helped his uncle rape and kill Halbach.
Dassey has remained in prison while the state appeals. Dassey confessed to helping Avery murder Halbach and mutilate her body.
The decision from the US Seventh Circuit Court of Appeals reverses a federal judge's ruling and means Dassey's life sentence will remain in effect. The Milwaukee Journal-Sentinel reported that he has a new lawyer compiling evidence to lobby for a retrial of his case.
They ruled by 4-3 that Dassey's confession could be used against him in a court of law, citing his decision to speak "freely" about his guilt.
The victim's charred remains were found in an incineration pit at Avery's home and scrap yard about 80 miles north of Milwaukee.
Dassey's lawyers had argued that their client, then 16, had a learning disability, and that police had coerced him into admitting his involvement in the crime.
But Judge Ilana Diamond Rovner strongly disagreed.
However, the dissenting opinion from Chief Judge Diane Wood, who was joined by judges Ilena Rovner and Ann Williams, characterizes the majority's rejection of Dassey's petition for a new trial as a "travesty of justice".
Zellner, in various court documents, has also implicated Bobby Dassey as the real culprit of Halbach's murder. Overall, about 12 percent of the wrongful conviction cases they track included a false confession.
Over a year ago, a federal judge overturned Brendan Dassey's murder conviction, setting the table for the subject of the Netflix documentary series Making a Murderer to be released from prison after almost a decade. "Unfortunately, this time-worn lesson was ignored today by four judges in the case of Brendan Dassey".
A three-judge panel from the 7th Circuit upheld the magistrate's ruling in June, but the state requested a review by the full 7th Circuit, which led to Friday's ruling.
Wisconsin Attorney General Brad Schimel issued this statement Friday: "I'm gratified that the United States Court of Appeals for the Seventh Circuit reversed the district court's grant of habeas".