Mohammed Zahir Khan said the terms of legislation introduced earlier this year, in the wake of terror attacks in London, breach human rights.
Lawyers representing Khan told two judges that the Terrorist Offenders (Restriction of Early Release) Act was directed at people holding "particular Islamic beliefs" and has a "disproportionate impact" on Muslims.
Justice Secretary Robert Buckland disagreed.
Lord Justice Fulford and Mr Justice Garnham, who analysed rival arguments at a virtual High Court hearing in June, have now dismissed Khan's challenge.
Khan had admitted encouraging acts of terror and inciting religious hatred via his social media accounts and was handed a four-and-a-half-year prison sentence in May 2018. He is originally from Birmingham, but was a shopkeeper living in Sunderland when he was jailed by a judge at Newcastle Crown Court.
Hugh Southey QC, who led Khan's legal team, said the new rules amended an early release regime, and extended the "requisite custodial period".
He said terrorist prisoners now have to spend two-thirds of their term in jail before being considered for release, rather than half.
Khan had been given an indication that he would be released by the beginning of March this year - in accordance with the "existing regime" for automatic release at the halfway point.
Mr Southey argued that terrorist prisoners were being treated differently and said law changes should be declared incompatible with rights enshrined in the European Convention on Human Rights - the right to liberty, the right not to suffer discrimination, and the right not to be held guilty of an offence which did not constitute an offence when it was committed.
Sir James Eadie QC, who led Mr Buckland's legal team, said the new provisions are not discriminatory, and apply equally to all relevant terrorist offenders, regardless of race or religion.
He said Parliament was entitled to conclude that terrorist offenders could be distinguished because of the risks involved.
The two judges said the new rules have not "undermined or compromised" the lawfulness of the sentence handed to Khan.
It is entirely foreseeable (if necessary with appropriate legal advice) that, during the currency of a determinate sentence, which was calculated and imposed without account being taken of the possibility of early release, the arrangements for the execution of the sentence might be changed by policy or legislation.
The news was welcomed by Northumbria Police and Crime Commissioner, Kim McGuinness.
This is the right decision. Let's be clear - a terrorist who is a threat to public safety should not be free to walk our streets. I'm relieved, as will be the people of Sunderland - public protection has to come first and fortunately common sense has prevailed here.