The unanimous decision by three Muslim judges in Malaysia's appeals court overturned a 2009 ruling by a lower court that allowed the Malay-language version of the newspaper, The Herald, to use the word Allah - as many Christians in Malaysia say has been the case for centuries.
"The usage of the word Allah is not an integral part of the faith in Christianity," chief judge Mohamed Apandi Ali said in the ruling. "The usage of the word will cause confusion in the community."
The decision coincides with heightened ethnic and religious tension in Malaysia after a polarising May election, in which the long-ruling coalition was deserted by urban voters that included a large section of minority ethnic Chinese.
In recent months, Prime Minister Najib Razak has sought to consolidate his support among majority ethnic Malays, who are Muslim by law, and secure the backing of traditionalists ahead of a crucial ruling party assembly this month.
His new government - dominated by his Malay-based United Malays National Organisation - has toughened security laws and introduced steps to boost a decades-old affirmative action policy for ethnic Malays, reversing liberal reforms aimed at appealing to a broader section of the multi-ethnic country.
In its case, the government argued that the word Allah is specific to Muslims and that the then-home minister's decision in 2008 to deny the newspaper permission to print it was justified on the basis of public order.
About 200 Muslims outside the court in the administrative capital Putrajaya, greeted the decision with shouts of "Allahu Akbar" (God is Greatest).
"As a Muslim, defending the usage of the term Allah qualifies as jihad. It is my duty to defend it," said Jefrizal Ahmad Jaafar, 39. Jihad is Islamic holy war or struggle.
RIGHTS OF THE MINORITY
Lawyers for the Catholic paper had argued that the word Allah predated Islam and had been used extensively by Malay-speaking Christians in Malaysia's part of Borneo island for centuries.
They say they will appeal against Monday's decision to Malaysia's highest court.
"The nation must protect and support the rights of the minority," said Father Lawrence Andrew, the founding editor of the Herald. "God is an integral part of every religion."
Christians in Indonesia and much of the Arab world continue to use the word without opposition from Islamic authorities. Churches in the Borneo states of Sabah and Sarawak have said they will continue to use the word regardless of the ruling.
The paper won a judicial review of the home minister's decision in 2009, triggering an appeal from the federal government. The court ruled on Monday that the constitutional rights of the publisher had not been infringed.
Ethnic Malays make up 60 percent of Malaysia's 28 million people, with Chinese accounting for more than a quarter and ethnic Indians also forming a substantial minority. Christians account for about 9 percent.