In announcing its decision on Thursday, the Swiss federal administrative court in St Gallen said the lax policy was unjustified. It had also been criticized by several Swiss politicians who claimed it was being abused.
To qualify as a refugee upon arrival in Switzerland, Eritreans simply needed to say that they had left their country "illegally".
That description could feasibly apply to anyone who flees the Horn of Africa nation, where an autocratic government enforces universal military conscription and requires citizens to secure exit visas before travel, which are rarely given out.
After a review of the policy, the court ruled that "the illegal exit from (Eritrea) cannot in itself justify recognition as a refugee".
The court cited several cases where Eritreans had been granted asylum in Switzerland but later returned to Eritrea for short visits.
According to the court, those cases proved that Eritreans who left their country illegally were not necessarily subject to mistreatment upon their return, undermining their claim to asylum.
In June, a UN-backed investigation said the Asmara regime led by president Isaias Afwerki's had "enslaved" 400,000 people.
The United Nations had also previously reported that 5,000 Eritreans risk their lives each month to flee the nation where army conscription can last decades.
Eritreans topped the list of asylum seekers in Switzerland last year, with 5,178 requests lodged, according to the Swiss migration office. More than 42 percent of them were granted asylum.
Eritreans are the largest diaspora of refugees in Switzerland, at around 34,500.
The federal court ruling, which was made on Monday but publicly released on Thursday, cannot be appealed.