The case was brought by the North East Forest Alliance, which has long fought against timber harvesting across four million hectares of native forest stretching from Sydney to the Queensland border.
The vast expanse of coastline is home to endangered species including koalas, greater gliders and spot-tailed quolls.
Lawyers for the alliance argued a regional forestry agreement between the Commonwealth and NSW governments shouldn't have been renewed without being subject to assessment and approval requirements set out under federal environment laws.
They argued the agreement was renewed in 2018, for a further 20 years, without due regard for environmental pressures including climate change and the ongoing decline of endangered species.
But the case was dismissed on Wednesday by Federal Court Justice Melissa Perry.
"A regional forest agreement provides an alternative mechanism by which the objects of the (federal) Environment Protection and Biodiversity Conservation Act can be achieved by way of an intergovernmental agreement," Justice Perry said.
She said the agreement allocated responsibility for matters of national environmental significance, to the state of NSW, within an agreed frame.
"As such, the question of whether or not to enter into or vary an intergovernmental agreement of this nature is essentially a political one, the most of which are matters for the government parties and not the courts to determine."
Comment has been sought from the alliance, which was represented in court by the Environmental Defenders Office.
Before the ruling was delivered, the Australian Forest Products Association warned thousands of jobs could be on the line if there was a shutdown of logging across a large area that provides much needed hardwood for construction and other purposes.
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