A 5th U.S. Circuit Court of Appeals panel in New Orleans ruled 2-1 Tuesday that barring the University of Texas from "limited use of race" would hurt diversity on campus.
The university was sued in 2008 by Abigail Fisher, who is white, for being denied admission.
The case went to the U.S. Supreme Court last year. But rather than issue a landmark decision on affirmative action, the high court voted 7-1 to tell a lower appeals court to take another look at Fisher's lawsuit.
The university said at the time that that decision would have no effect on its admissions policies.
Fisher's attorneys said they plan to appeal Tuesday's ruling.