The computer enthusiast from North London has been defending himself against the order in the UK Court of Appeal, after Home Secretary John Reid determined in 2006 that the extradition should go ahead.
McKinnon will now be tried in the US on charges of breaking into and damaging US government computers.
McKinnon is alleged to have hacked into computers belonging to the US Army, US Navy, US Air Force, Department of Defense and Nasa.
He claims that he broke into the networks only to uncover confidential information about anti-gravity propulsion systems and extraterrestrial technology which he believed the authorities were hiding from the public.
"The US government is taking a hard line on cyber-crime, and will not tolerate anyone trying to compromise its own computers. McKinnon really should have considered this before he went UFO hunting," said Graham Cluley, senior technology consultant at Sophos.
"This decision will doubtless send shockwaves through the hacking community but, irrespective of McKinnon's motivations, hacking is illegal in the UK and the US, and it's high time people started thinking twice before engaging in such activities."
A Sophos online poll in 2006 revealed that 52 per cent of IT professionals thought McKinnon should not be extradited, while 48 per cent said it was correct for him to face a US court.