Sharbat Gula, now in her 40s, is under arrest in Pakistan for falsifying documents and staying illegally in the country.
"The petition filed in the special court was dismissed," her lawyer Mubasher Nazar said.
Gila, whose striking green eyes in a National Geographic cover photo made her face known around the world, was 12 when photographer Steve McCurry captured his iconic image of her living in a refugee camp for Afghan nationals in Peshawar, Pakistan.
Gula -- also known as Sharbat Bibi -- was arrested in Peshawar last week.
If convicted, she could be jailed for up to 14 years or be deported, said Zia Awan, a human rights lawyer based in Karachi.
Naseem Kakad, an official at the Afghan consulate in Peshawar told CNN: "We will follow our lawyers instructions, we will take this case to every court possible."
Last year, Gula was arrested on similar charges, but was later released.
McCurry, the photographer, said he is committed to helping her legally and financially.
"I object to this action by the authorities in the strongest possible terms," he said in a statement. "She has suffered throughout her entire life. Her arrest is an egregious violation of her human rights."
Mounting pressure on refugees
Lat week the UN Refugee Agency (UNHCR) in Afghanistan said it would only be able to assist in the case if Gula registers as a refugee.
"Sharbat Gula falls under the 'undocumented migrants' umbrella," said Duniya Khan with the agency's Pakistan office. "The UNHCR cannot intervene since she is not a registered refugee."
The International Organization for Migration (IOM), which assists undocumented migrants, says the arrest -- although legal if the ID card is proven to be false -- is symptomatic of mounting pressure on Afghan refugees in Pakistan to return home.
"It is a sign of the times in Pakistan, that it has now reached someone who was something of a celebrity in the '80s, someone more high profile than the average," said Nicholas Bishop, project development officer for the IOM in Afghanistan.
Human Rights Watch said since July 1, Pakistan has repatriated 370,000 Afghans, nearly 220,000 of them registered refugees.
"They are joining more than one million internally displaced Afghans who are struggling to survive in a country still wracked by conflict and crushing poverty," the group said in a statement.
Millions of Afghans have sought shelter in Pakistan over the years as their country became ravaged by conflict, HRW added.