The court rejected an appeal by environmental groups who fear the project will damage Patagonia's fragile ecosystem, as 5,000 acres of land would be flooded by the damming of two fast-flowing rivers that run into the Pacific.
Five dams with power stations would be built, two on the Baker River and three on the Pascua River, the BBC reported.
The project still needs approval by the Chilean government, which has called the dams essential to meet Chile's growing energy needs.
The HidroAysen project is a joint venture by Spanish and Chilean energy companies, and will require the building of a 1,250-mile transmission line to deliver power to the country's capital of Santiago.
If the government gives its approval construction work could begin in 2014 and is expected to take around 10 years.