A freewheeling neighbourhood which has remained largely self-governing since its creation by hippie squatters four decades ago has lost out in a legal battle undertaken by the Danish government.
The country's Supreme Court upheld a lower court decision from 2009 saying that the 900 residents of Christiania have no irrevocable right to use the former naval base as their home.
The decision ends a six-year legal standoff and means the government can go ahead with plans to "normalise" the neighbourhood and tear down scores of ramshackle homes built at the site without permits.
Residents say they will resist any attempts to evict them from the area, which has become a major draw for tourists.
"The court process is now finished," Christiania spokesman Thomas Ertman said. "We have to now look to the future and need to sit down with the state and work out a negotiation for Christiania."
Christiania was formed in 1971 when hippies moved into an abandoned naval base and built an alternative society with houses painted in psychedelic colours and hashish traded and smoked, while authorities turned a blind eye. Residents currently don't pay rent, but a fixed, monthly fee of 1,600 kroner ($180) for electricity, water and other municipal services.
A sombre mood descended on the normally cheerful enclave after the verdict. "Its terribly sad," said Iben Kramp, a frequent visitor to the neighbourhood. "Christiania is an oasis in a hectic modern world. We have something unique here in Copenhagen and we should not be killing it off in the name of normality."
Polish tourist Julian Jablonski, however, said change was inevitable. "Christiania needs to wake up and get into the 21st-century," he said. "This is a prime location and you cannot stop progress."