Police in the Swiss canton of Neuchatel in 2001 banned the Raelian group, which claims aliens created life on earth, from putting up the posters.
The local ban came after other authorities in Switzerland had allowed the posters.
Neuchatel officials said the posters presented a public order threat because Raelians promote human cloning and "geniocracy", a system where leaders are picked according to their intelligence.
Additionally, a Swiss court found the Raelians had "theoretically" advocated paedophilia and incest, the European Court of Human Rights said in a statement Friday.
The group had also been the subject of criminal complaints about sexual practices involving children, the court said.
Swiss high courts affirmed the ban and Europe's top rights court in January 2011 upheld the decision.
The Raelians then appealed the Strasbourg-based court's decision, ultimately winning an appeal for the Grand Chamber to hear the case.
The 17-member chamber ruled Friday, nine to eight, that the Raelians' freedom of expression was not violated.
"Authorities had not overstepped the broad margin of appreciation given to them in view of the non-political dimension of the poster campaign," the court said.
At a November hearing, a lawyer for the Raelians argued that cloning is not illegal. He said the religious movement had repeatedly condemned all acts of paedophilia and said it was contradictory to ban a poster when neither the sect nor the website were barred.
The court also noted the ban only applied to putting posters on public property, "allowing the association to use other means of expression."
The Geneva-based sect, which claims tens of thousands of members worldwide, was founded in 1976 by Claude Vorilhon, known as "Rael".
According to its constitution, the group aims to make the first contacts and establish good relations with extraterrestrials.
The poster in question was about one-metre (three feet) tall and across the top in big letters were the words: "The Message from Extraterrestrials", according to the court.
Underneath was the Raelians' web address, a French phone number and the phrase: "Science at last replaces religion."
The middle of the poster showed alien faces and a pyramid, together with a flying saucer and the Earth.