The local activists and journalists had filed a RM87 million suit against the government in 1998 - two years after the incident.
Appeals Court Judge Wan Adnan Muhamad delivered his decision saying that "the facts here are clear and straightforward and the judgment is based on facts submitted by both parties".
The government was ordered to pay RM870,000 in total to the plaintiffs.
The suit was filed against the government after the group's wrongful detention at the Second Asia Pacific Conference on East Timor (Apcet II) on Nov 11, 1996.
The conference was held to discuss human rights abuses in East Timor and its struggle for independence from Indonesia.
It was held at the Asia hotel in Kuala Lumpur and saw nasty scenes when an Umno Youth mob stormed the venue and harassed the 60 participants.
Four hundred members from the Umno Youth-led BBRM (or Malaysian People's Action Front) broke down the doors of the conference halls, threw chairs and verbally and physically abused the participants.
The police intervened an hour later but instead arrested the conference participants.
Foreign participants were immediately deported while the local ones, including several journalists, were detained for up to a week.
A total of 36 activists and journalists originally filed the law suit but seven withdrew and one passed away.
Among the plaintiffs are:
1) Then PRM vice-president Sanusi Othman
2) PKR deputy president and senator Syed Husin Ali
3) Batu parliamentarian Tian Chua
4) Malaysiakini chief executive officer Premesh Chandran
5) Malaysiakini editor-in-chief Steven Gan
6) Malaysian Trade Union Congress president Syed Shahir Syed Mohamad.
Other high-profile plaintiffs include Subang MP R Sivarasa, Parti Sosialis Malaysia president Dr Nasir Hashim and former New Era College principal Kua Kia Soong.