At least 100 jobs will be affected by the closing of the mine. Production from the mine brought in revenues of about $280 million a year for LKAB.
The company will now draw up a plan to close its operations safely with as few negative consequences for the environment as possible.
Jan Darpö, professor of environmental law at Uppsala University, said he is surprised the company started digging before the environmental permit went into effect.
"I don't understand how they reasoned. The permit was no longer going to be valid given the Superior Land and Environment Court's ruling. It seems like LKAB was betting on that not being the case," Darpö told Swedish news agency TT.
"It sounds like they haven't been advised well."
In its decision today, the Supreme Court said that it only grants a hearing if it can provide legal precedence for the future.
Per-Erik Lindvall, head of technology and business development at LKAB, told TT that he is disappointed and that the case illustrates the need to review permit processes. "This is not about emissions. It's a procedural question about permit management."
"We think the Superior Land and Environment Court ruled incorrectly. The Supreme Court has only said that it will not hear the case. It has not placed a value judgment in its ruling," Lindvall said. "This just shows that that the discussion we had with politicians about a review of the permit processes is important. We're not doing it for less stringent environmental terms but rather to simplify the process."
A review of the processes has begun, said Enterprise Minister Annie Lööf. "There is a boom in the mining and minerals industry, and the government is working to quickly review the environmental permit process and shorten processing times to promote the development we see today," Lööf said.
LKAB already submitted an application for an environmental permit covering all of its operations - mining, enrichment and pellets production -in Svappavaara, including the mining in Gruvberget in June 2011.
The Land and Environment Court in Umeå will process the application.