Barry George, who spent eight years in prison after being wrongly convicted of the murder of TV presenter Jill Dando, has lost his High Court bid for compensation as a victim of a "miscarriage of justice".
Two judges rejected his claim that the Justice Secretary unfairly and unlawfully decided he was "not innocent enough to be compensated".
Lord Justice Beatson and Mr Justice Irwin ruled that the Secretary of State was "entirely justified in the conclusion he reached."
Miss Dando, who was from Weston-Super-Mare was shot dead outside her home in Fulham in April 1999.
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Military personnel are unlikely to be deployed on the streets of Avon and Somerset despite an increase in the national terror threat level.
The major party leaders' campaigns for the General Election will remain suspended on Wednesday following the Manchester terror attack.
The threat level has been raised to critical by MI5's Counter-Terrorism Analysis Centre.