A federal appeals court panel in Washington, D.C., on Friday upheld the Pentagon's blacklisting of Anthropic, dealing a blow to the artificial intelligence company in its months-long battle with the Trump administration.

The 2-1 decision rejected Anthropic's argument that the Department of Defense's ban on its Claude models was arbitrary, unauthorized and unconstitutional.

"The Department had ample support for its conclusion that the continued integration of Claude into the Department's information systems, by the Department or its contractors, presented a statutorily covered national-security risk," Judge Gregory Katsas wrote in the majority opinion for the U.S. Court of Appeals for the District of Columbia, which Judge Neomi Rao joined. Katsas and Rao were appointed by President Donald Trump.

Judge Karen LeCraft Henderson, who was appointed by former President George H.W. Bush, dissented.

In March, the DOD labeled Anthropic a supply chain risk, meaning the company purportedly threatened U.S. national security, after negotiations about how the military could use its Claude AI models spiraled out of control. The designation prevents the U.S. military from using Anthropic's models and blocks defense contractors from using them in their work with the agency.

Anthropic sued the Trump administration in U.S. District Court in San Francisco and in the D.C. Circuit Appeals Court, seeking to reverse its blacklisting. The DOD relied on two distinct designations to justify its supply chain risk action, which meant they had to be litigated in two separate courts.

A San Francisco federal judge ruled last month that one designation was illegal. The ruling Friday by the D.C. appeals court upheld the second designation. 

"We respectfully disagree with the court's decision," an Anthropic spokesperson told CNBC in a statement. "Another federal court has already held the government's parallel designation unlawful. We remain confident in our position and are considering all options, including further review."

The appellate panel said it would delay the decision from taking immediate effect to give Anthropic time to petition the same panel for a rehearing or to seek an en banc rehearing of the case, by all of the judges on the D.C. Circuit Court of Appeals. Anthropic could also ask the Supreme Court to take the case.

Before the clash between the two sides spilled into the public's view earlier this year, Anthropic served as an early partner across many U.S. agencies, including the DOD. Anthropic signed a $200 million contract with the Pentagon in July of 2025, but as the company began negotiating Claude's deployment on the DOD's GenAI.mil AI platform that September, talks collapsed.

The DOD wanted Anthropic to grant the military unfettered access to its models across all lawful purposes, while Anthropic wanted assurance that its technology would not be used for fully autonomous weapons or domestic mass surveillance. They were unable to come to an agreement, and Defense Secretary Pete Hegseth accused Anthropic of attempting to "to seize veto power over the operational decisions of the United States military."

"The Department reasonably feared that Anthropic might manipulate Claude's design to prevent it from performing national-security functions that the Department deems contractually authorized and necessary," Katsas wrote Friday.

WATCH: CEOs of OpenAI, Anthropic and Hugging Face to brief UN Security Council