The Government yesterday failed in its attempt to overturn an earlier ruling that 2011 regulations underpinning the schemes were invalid.
The case was brought by Geology graduate Cait Reilly, who claimed that forcing her to stop volunteering in a museum and start working unpaid at a Poundland store breached her human rights.
The 24-year-old graduate said she gained nothing from the fortnight and felt as though she was simply giving her labour for free.
However, judges rejected claims the schemes were "exploitative" and amounted to "forced labour".
Prior to the appeal, the Government had insisted it has since changed relevant parts of legislation and dealt with many of the issues, meaning the scheme can continue.
Carla Davidson, associate in the Employment, Reward and Immigration department at law firm Lewis Silkin, said: "This ruling is embarrassing for the Government, in that it has provided another opportunity for critics of unpaid work schemes to air their views on the importance of paying workers fairly.
"The publicity around this judgment serves as an important reminder to all employers, of the potential costs of taking on unpaid interns".
Following the judgment, Reilly, who said she had been unfairly labelled a "job snob" for challenging the scheme, said: "I am really pleased with today's judgment, which I hope will serve to improve the current system and assist jobseekers who have been unfairly stripped of their benefits.
"I have been fortunate enough to find work in a supermarket, but I know how difficult it can be. It must be time for the Government to rethink its strategy and actually do something constructive to help lift people out of unemployment and poverty."
In a statement, the Department of Work and Pensions said the Supreme Court had "unanimously upheld our right to require those claiming jobseeker's allowance to take part in programmes which will help get them into work".
"We have always said that it was ridiculous to say that our schemes amounted to forced labour, and yet again we have won this argument," Work and Pensions secretary Iain Duncan Smith said.
