FIFA's decision late means Barcelona star Lionel Messi, 21, can compete for Argentina, while Werder Bremen must release Diego, 23, to play for Brazil alongside Schalke 04's Rafinha, 22.
Both Brazilians are in China preparing for the Olympics, but their clubs want them to return to Germany immediately. The three clubs had challenged football's global governing body on the
grounds that the Olympic Games were not included on the international match calendar, and the players are needed for the start of the season in August.
Before Wednesday's decision, the three teams had indicated they would appeal to the Court of Arbitration for Sport (CAS) if FIFA ruled against them. The complaint documents were submitted by both Schalke and Werder to the CAS on July 25. But late Wednesday a statment from CAS dealt a blow to the German clubs' hopes of recalling their young stars, claiming it had no jurisdiction to rule on the matter.
"The German clubs put forward that the jurisdiction of the CAS was based on the Olympic Charter. However, the CAS stated that the Charter was not directly applicable to professional football clubs," the statement read.
Tunisian judge Slim Aloulou, who serves on FIFA's player status committee, earlier in the day ruled that the release of players aged 23 and under was "mandatory for all clubs."
Schalke 04 manager Andreas Müller said he was not suprised by FIFA's ruling. "We expected the decision to follow what FIFA had previously said," Müller told German sports agency SID. "It would have been very surprising if the judge had left FIFA president Sepp Blatter out in the rain. We want to put our arguments to the CAS court next week."
After hearing the FIFA ruling, Werder Bremen allowed Serbia's Dusko Tosic to fly to Beijing but will take legal advice on their options. "We will let the ruling be examined by our lawyer and then will decide which course of action to take," Bremen's director of sport Klaus Allofs told
German sports agency SID. "Whether withdrawing the complaint is an option, we will see."
Both Barcelona and Schalke have Champions League qualifiers during the Olympics, which ends on August 24, while Bremen want Diego for the start of the Bundesliga on August 15. But FIFA's ruling insists the players involved must have their chance to compete at an Olympics.
"Taking part in the Olympic Games is a unique opportunity for all athletes of any sporting discipline," FIFA said in a statement. "It would not be justifiable to prevent any player younger than 23 from participating in such an event if his representative team had qualified."