A High Court in Manchester has ordered the Championship side to pay £2.25m in compensation to the Norwegian for the remaining two-and-a-half years of his contract.
Berg was sacked by Blackburn last December following a 57-day reign which saw him win just one of his 10 matches in charge.
Blackburn's barrister had argued during the two-day hearing that the club was 'out of control' and managing director Derek Shaw had no right to give Berg a contract entitling him to a full pay-out if he was sacked.
However, Judge Mark Pelling dismissed the appeal on the grounds it was legally flawed and ordered Rovers' Indian owners Venky's to pay up the remainder of the contract, plus £20,000 in costs.
Judge Pelling said: "In my judgment it is unarguable to suggest that the managing director of Blackburn does not have implied or usual authority to sign employment contracts on its behalf.
"As I have said it is common ground that Mr Shaw had been actually authorised to negotiate and conclude an employment contract with Mr Berg.
"The letter of October 31 certainly contains a provision to the effect that the contract would be for a fixed period ending on June 30, 2015."
Berg, speaking after the hearing, insisted that he bore no ill-will to the club or the supporters.
"Being appointed manager of Blackburn was a great opportunity for me," he said. "The club has always had and continues to have a special place in my heart.
"I was very disappointed to be dismissed after only eight weeks in charge without being able to make the changes I felt were necessary.
"When the club refused to honour its obligations I had no option but to take legal action. I now wish to place all of these events behind me and move on.
"I wish the club's players and loyal and committed supporters all the best for the future."
Berg's replacement at Ewood Park, Michael Appleton, lasted just 10 days more than his predecessor before he was also sacked with reserve team boss Gary Bowyer placed in temporary charge for a second time this season.