The source told Reuters the Civil Court of the Canton of Vaud in Switzerland rejected Kuwait's case against the IOC, notifying the parties earlier on Tuesday.
Kuwait and the IOC have been at loggerheads over a new sports law that the Olympic body says will undermine the autonomy of sport in the country. Kuwait argues it will strengthen the independence of sports bodies.
The court decision means Kuwait's nine athletes eligible to compete at the Rio Games in shooting, fencing and swimming, will do so as neutral athletes and will march into the Maracana stadium under the Olympic flag at Friday's opening ceremony.
The court also ordered Kuwait and its Public Authority for Sport (PAS) to pay the IOC about 10,000 euros (8,409 pounds) in fees and expenses. Kuwait has the right to appeal to the Swiss Federal court within 30 days of the decision.
The ban, which was imposed in October, means the country's Olympic Committee, and consequently its athletes, are also not eligible for any funding from the IOC for the duration of the suspension and cannot take part in any IOC-linked event.
(Reporting by Karolos Grohmann; editing by Ken Ferris)
