"The life of the applicant is in the Chinese Government's hands," the court ruled, citing a Chinese proverb.
China earlier promised not to sentence Lai to capital punishment if he is tried and found guilty. Canada, which does not practice capital punishment, prohibits the return of prisoners to countries where they might be put to death.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
There was no immediate word from Lai's lawyers about whether the court ruling will be appealed.
Lai remained behind bars Thursday night, after a separate court ruling overturned an order by the Immigration and Refugee Board to release him.
Canadian officials told the court Lai could be sent home as early as the weekend.
If an appeal is not launched, or fails, the ruling will end Lai's 12-year battle to remain in Canada. The case has soured diplomatic relations between the two countries, and pitted Western ideas about human rights against China's treatment of prisoners.
Canada's government has repeatedly tried to send Lai to China, but the independent courts and Immigration and Refugee board had blocked his deportation until now on human rights grounds.
Lai fled here with his family in 1999 after being accused in China of running a $6 billion (US) smuggling ring in Fujian province. His lawyers say at least seven of his associates have died or vanished in China's justice system.
Earlier this month, a key risk assessment by immigration officials cleared the way for his return, after they ruled Lai would not risk death or torture if sent home to China. Thursday's ruling rejected the prisoner's appeal of that risk assessment.
His lawyer, well-known human rights advocate David Matas, has warned repeatedly that Lai would risk death or torture in China, despite the country's unusual diplomatic assurances to Canada.
Matas noted in a court filing that China has promised "access to a lawyer, permission of a Canadian official to be present at the hearing of the applicant, Canadian official access to recordings of interrogations and hearings, and permission for Canadian officials to visit the applicant in prison, mitigating risk of abuse."
But, he added, "these four assurances amount to nothing."
The court apparently disagreed.
The ruling, emailed Thursday night to reporters, cited China's much-criticized record on its treatment of other prisoners and noted they "are detained together indiscriminately."
However, "it is assumed that the assurances of the Chinese government... will be kept," the court added.
The ruling said China's "honor and face" would be at stake during the lifetime monitoring of Lai.
