The 15-year-old Scot became the youngest ever Commonwealth medallist when she finished third in the SB9 100m breaststroke aged 13 in 2014.
However, she was told in April her impairment was now not serious enough for her to compete in Para-swimming.
A second panel, at the Berlin Open event, upheld the result on Wednesday.
Davies, from the Delting Dolphins club in Shetland, has Perthes disease, a condition that affects her hip bones and joints.
Before losing her classification, she was only eligible to compete in breaststroke events.
Commonwealth Games bronze medallist Erraid Davies has been deemed ineligible for disability swimming after medical tests.