The Federal Court of Appeals yesterday also threw out a policy that had required new citizens to have their faces uncovered as they recite the citizenship oath.
It upheld a lower court's ruling that the niqab, which covers all of the wearer's face except the eyes, can be worn at the ceremony.
Conservative Prime Minister Stephen Harper had called that earlier decision, issued in February in the case of Toronto-area resident Zunera Ishaq, "unacceptable" and had appealed to defend his law.
"The appeal was dismissed with compensation," a court spokesman told AFP, noting the three judges had cited the urgency of deciding the case quickly so Ishaq can take the citizenship oath in time to vote in the October 19 parliamentary elections.
Originally from Pakistan, Ishaq arrived in Canada in 2008 and passed her citizenship test in 2013.
But Ishaq refused to participate in the oath-reciting ceremony because she did not want to do it with her face uncovered, as required under a 2011 law.
The ban notwithstanding, Canada sees itself as a pioneer in multiculturalism for policies including allowing mounted police who are Sikh to wear their traditional turban and dagger while in uniform.
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