The woman had charged 11,000 kronor ($1283) a month to let out her 60 square metre two-room apartment in Enskede in southern Stockholm, which was split between two tenants.
After the renters complained that they had been overcharged, she argued that the price was fair because it also included electricity and cable television and because she considered her furniture to be particularly lavish.
When the tenants won their case at a rent tribunal over the winter, the woman appealed the decision, but recently lost her case at a Stockholm appeal court, with the decision reported widely in Swedish media on Thursday.
The court said that she should not have charged a total monthly fee of more than 7300 kronor ($851) and should therefore pay back around 30,000 kronor ($3499) to the tenants.
"It will set a legal precedent in terms of not being allowed to charge so much for furniture," Gunnel Civerius, a press spokesperson for the Swedish Union of Tenants told The Local.
"It will provide hope to others, of course it will," she added.
Under Swedish law, residents with first-hand rental contracts who sublet their apartments are not supposed to charge more rent than they themselves would pay if they were living at the property. But they are allowed to charge extra for bills and add on a further 15 percent if the apartment is furnished.
The Swedish Union of Tenants urged other tenants subletting properties who felt they were being ripped off to call them for "basic general advice". It said that those who signed up to be members of the union, for a cost of 80 kronor per month, would also be entitled to free legal advice.
"If you think you are paying too much, we can look up how much you should be paying and help you make your case," said Civerius.
The rules are slightly different for tenants renting directly from landlords, who are able to ask people for higher monthly fees based on ownership costs following a change in the law in 2013. Previously they were also supposed to charge rental charges in line with similar apartments owned by public or private housing companies.
"They can almost charge whatever these days," said Civerius.
A recent study by Swedish home magazine Hem & Hyra, which compared the prices of apartments listed on Swedish online marketplace site Blocket, suggested that average rental prices for properties in Sweden had increased by around 8 percent over the past year and shot up by 20 percent since the new legislation came in.
The average price of renting a studio apartment in Stockholm is now 8247 kronor ($961) a month, compared to an average of 5824 ($679) kronor paid by those with first-hand rental contracts.
A two-room apartment in the capital now costs an average of 12,051 kronor ($1405) while those with first-hand rental leases pay 9708 kronor ($1132).
Meanwhile first-hand rental contracts remain almost impossible to score for new residents in the Swedish capital, with 20-year waiting lists
in some parts of the city.
Price differences are much narrower outside of Stockholm. In Gothenburg a studio apartment costs around 4502 kronor ($525) a month if you have a first-hand contract, or 5254 kronor ($612) without, while in locations including Malmö, Norrköping and Örebro costs are almost identical, according to Hem & Hyra's study.