Two Swedish newspapers, Expressen and Aftonbladet, reported in 1996 that investigators were looking into allegations that Anthony White, a former soldier in the Rhodesian army, had shot Palme dead as he left a Stockholm cinema in 1986.
But no evidence was found to support the allegation – made by Dirk Coetzee, a former South African terrorism expert – and the Swedish authorites subsequently ended their enquiries into White.
White complained, first to Swedish tribunals and then to the Strasbourg-based European Court of Human Rights, saying the reports had damaged his good name and constituted an attack on his private life.
But on Tuesday the court ruled that the newspapers had been within their rights to publish information about the episode.
"The Court noted that, in the series of articles, the newspapers endeavoured to present an account of the various allegations which was as balanced as possible and that the journalists acted in good faith. The Court also considered that the domestic courts made a thorough examination of the case and balanced the opposing interests involved," the court said in a statement.
"The Court found that the courts were justified in finding that the public interest in publishing the information in question outweighed the applicant's right to the protection of his reputation," the statement added.
Palme's murder has never been solved.