IMF boss Lagarde to face trial
If she is found guilty, Lagarde could face up to one year in prison and a fine of up to 15,000 euros.
The ruling by the Court of Cassation means Lagarde will have to stand trial in France, a scenario she has been fighting to avoid.
The prosecutors wanted to drop the case in Sept. 2015.
Lagarde stands charged with negligence related to an approximately $440.7million payment to Bernard Tapie, part of a 2008 arbitration agreement between Tapie and the French bank Credit Lyonnais.
Critics have long argued that the deal was too generous to Tapie and have speculated that he only got it because of his political connections, including to then president Nicolas Sarkozy.
Lagarde has consistently denied wrongdoing.
"The Court of Cassation, however, did not address the substantive question of Lagarde's alleged negligence", the IMF Chief's lawyer, Patrick Maisonneuve, said.
He said he regretted that the appeal was not upheld.
"The case will now be heard by the Court de Justice and I am convinced that the court will find the allegations of negligence to be without merit", he added.
Lagarde, who was in China for a G20 meeting, did not immediately issue a statement. In the past, she called the accusations "completely groundless."
The IMF official appealed to the nation's high court in December to block the case from going forward.
Lagarde's lawyer said at the time that she "shared the prosecutors' view that there was no basis for any charge against their client.
The Court of Cassation rejected her appeal meaning that the case can now go forward.
Lagarde has headed the IMF since 2011; taking over from former French finance minister, Dominique Strauss-Kahn, who was forced to give up the post following sex scandal.
Responding to the Court’s decision, the IMF said it does not comment on ongoing judicial proceedings but said it retained confidence in Lagarde.
"The executive board has been briefed on recent developments related to this matter, and continues to express its confidence in the managing director's ability to effectively carry out her duties", the IMF said.
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