Gotabhaya, the brother of the Sri Lankan President Mahinda Rajapaksa had claimed damages from the Sunday Leader newspaper over an article linking him to the purchase of MiG aircraft for Sri Lankan airforce which he complained was defamatory.
The case was filed in 2008 during the time of the paper's slain founder editor Lasantha Wickrematunga.
The court also issued a permanent injunction, preventing the defendant from publishing any further defamatory articles.
The defence secretary later had obtained a writ against the paper publishing stories regarding him after Wickrematunga's successor Frederica Jansz took control of the paper.
Jansz had later alleged that Gotabhaya had threatened her.
Jansz was sacked after the management of the holding company of the paper changed hands recently.
Until then the Sunday Leader was known for its anti-government content and exposes.
There was no immediate reaction from the paper's management on the court ruling.