An application for a judicial review into the Home Office's decision to accommodate asylum seekers in hotels in Torbay has been refused.
Torbay Council had argued the Home Office's action was putting increased pressure on local services.
It argued officials had also failed to consider the location of the hotels.
Council boss Anne-Marie Bond said she was "disappointed" by the court's decision following a hearing on Wednesday.
She said: "We felt that the unprecedented numbers recently welcomed in Torbay warranted this challenge.
"It was necessary to do this because of the immediate and continued financial and resource impact placed on our children's social care, health provision and more recently our education system.
"It needed to be highlighted and the Home Office reminded about these extra pressures placed on a unitary authority, especially a small coastal one like us."
A Home Office spokesperson said: "The government has been clear that the use of hotels to house asylum seekers needs to stop as they are an expensive short-term solution.
"We are working with our accommodation providers to find longer-term accommodation, such as dispersal properties."
Ms Bond said the authority would continue to lobby the government to "ensure the financial recompense meets the needs and challenges of those who require ours and the communities response and support".
She said the council had "never waivered in our commitment to welcome and support those arriving in Torbay that need our help".
The Home Office first set up a hotel to accommodate asylum seekers in Torbay in November 2022.
A second hotel was set up a short time later.
Other hotels were set up in Newquay, Ilfracombe, Exeter and Exmouth.
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