The contractor, 62-year-old Alan Gross, was convicted in March of distributing illegal communications equipment in Havana.

He says he was just trying to help Cuba's small Jewish community.

The rejection of his appeal is likely to further sour relations between the US and Cuba.

In his appeal hearing last month Gross admitted bringing satellite equipment into the country, but said he never intended to harm the Cuban government.

The Supreme Court rejected his argument, saying he was part of a US government programme aimed at "destabilising" and "subverting" Cuba's communist system.

Gross's US lawyer, Peter Kahn, said in a statement that his family was "heartbroken" by the decision, but remained hopeful that there could be a diplomatic solution.

The case has brought US-Cuba relations to a standstill after a brief warming under President Barack Obama, says the BBC Havana correspondent, Michael Voss.

The appeal verdict will make it impossible for Washington to launch any further initiatives, our correspondent adds.

Gross was arrested in December 2009. He was in Cuba working as a contractor for the US Agency for International Development (USAID) on a secretive programme aimed at promoting democracy in Cuba.

He was found guilty and sentenced in March for "acts against the independence and integrity of the state".

The White House called the prison term "another injustice" for Gross and said he had already spent too long in jail.

Gross' wife Judy had already made a separate plea to President Raul Castro for this immediate release on humanitarian grounds.

Cuban officials have hinted that they are sympathetic to humanitarian appeals but could not act before the Supreme Court had ruled, our correspondent says.