The policy was introduced last year after several cases of violent prisoners absconding from open prisons.
But judges decided in April that such bans were inconsistent with the then justice secretary's parole directions.
The Ministry of Justice has now successfully challenged the ruling.
Chris Grayling had announced in 2014 that the government was "tearing up" the current system and introducing restrictions on known absconders, following a number of high-profile escapes.
They included armed robber Michael Wheatley, who carried out a raid on a building society after absconding from an open prison but was later returned to custody.
Under the previous system, prisoners could be moved to open prisons - also known as category D prisons - if the parole board found they were not a danger to the public or other inmates, or were unlikely to abscond.
Prisoners were often moved to such prisons towards the end of their sentence.
Inmates could then be given release on temporary licence (ROTL), allowing them to leave the jail for a few hours or even overnight.
The High Court decided it was inconsistent for the government to ban transfers, apart from in exceptional circumstances, because of Mr Grayling's own directions to the Parole Board.
These stated that "a phased release" to open prison was necessary for most inmates serving indeterminate sentences, in order to "test the prisoner's readiness for release into the community".
Three judges at the Court of Appeal have now allowed the government's appeal.
Announcing the unanimous decision, Lord Justice Sales said the conclusion was that the "various challenges to the lawfulness of the absconder policy must fail."
A High Court decision that it was unlawful for the government to ban inmates with a history of absconding from being transferred to open prisons has been overturned.