A three-judge panel of the state Court of Appeals found that the Idaho Republican cannot rescind his 2007 plea, the Minneapolis Star Tribune reported.
Craig was arrested on suspicion of making sexual advances to an undercover police officer in the next bathroom stall at the Minneapolis International Airport.
Once his conviction became public, the senator tried to withdraw it, the newspaper said.
"I maintain my innocence, and currently my attorneys and I are reviewing the decision and looking into the possibility of appealing," Craig said in a statement on his Senate Web site.
Craig appealed his case, claiming the Minnesota law violated his freedom of expression, The Christian Science Monitor reported.
The appeals panel said "foot-tapping and the movement of his foot toward the undercover officer's stall are considered speech, they would be intrusive speech directed at a captive audience and the government may prohibit them."