Despite a general ban on smoking in restaurants, pubs and bars introduced in 2008, more than 25 percent of small cafes in the Netherlands still have an enclosed inside corner where patrons can legally light up, under an exception to the legislation.
But the court in The Hague found that such spaces were "in conflict" with the World Health Organization's framework convention to regulate tobacco use, which the Netherlands has signed and which entered into force in 2005.
Under the loophole, cafes which are smaller than 70 square metres were allowed to set aside a screened-off area for smokers behind floor-to-ceiling glass windows.
But it had to be less attractively decorated than the rest of the cafe, and no food or drink could be served inside.
Clean Air Netherlands (CAN), which had appealed after losing an earlier case in 2016, said it was "happy and satisfied" with Tuesday's outcome.
It said its mission was to strive for a smoke-free society by discouraging tobacco use.
"Smoking-rooms do not belong with this, therefore this is a small step in the right direction," it said on its website.
It was not immediately clear when the smoking-rooms would be closed, as there could be a further appeal, Dutch media said.
The court also threw out CAN's claim that the ban covers all indoor public smoking spaces, saying it had not provided sufficient evidence.
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