The Supreme Court in Nauru has found the caretaker government acted legally in invoking state of emergency legislation.
The Marcus Stephen led government has ruled by decree since June following months of a political standoff.
Members of the opposition had initiated the court action, claiming Mr Stephen acted unconstitutionally when he sacked the parliamentary speaker and declared a state of emergency.
The Supreme Court says the constitution allows the president to determine whether a state of emergency exists, not the court.
The leader of the opposition grouping, Baron Waqa, says they will now pursue a political solution and he is supportive of Mr Stephen's quest to have constitutional changes, such as increasing the size of parliament by one seat, before any more polls.
"I think it is the only way [for] having this stalemate resolved and we need to have another MP included so if we want to do that then we have to have an operational parliament with the government in place and the speaker in place and so forth."