The Supreme Court has ruled that British troops are not protected by human rights laws on the battlefield.
The family of Pte Jason Smith, who died of heatstroke in Iraq in August 2003, had argued that troops should receive such protection in conflict overseas.
Commanders said it was impractical to allow troops in combat zones to be protected by human rights law.
The Supreme Court has now quashed previous rulings that the legislation should apply to soldiers at all times.
The president of the Supreme Court, Lord Phillips, said service personnel fighting abroad would not necessarily be covered by human rights law.
He said that only in "exceptional circumstances" could obligations be imposed on countries in relation to people outside their territorial jurisdiction.
The court ruled they did not extend to servicemen and women abroad.
Jocelyn Cockburn, representing Pte Smith's mother, Catherine Smith, said the decision was "shocking".
She said soldiers believed they were under UK jurisdiction and were sent abroad by the Queen to serve the people of the UK.
"Despite this, the Supreme Court has held that soldiers leave the UK jurisdiction, in so far as the Human Rights Act is concerned, when they leave a UK army base," she said.
"It can only be hoped that the morale of soldiers who are risking their lives for us will not be severely damaged by this astonishing finding.
"It is artificial to assert that rights can be protected on-base but not off-base."
She said the issue would ultimately have to be tested in the European Court of Human Rights in Strasbourg.
Mrs Smith said she continued to have concerns about what rights soldiers had when off-base.
However, she welcomed a decision to hold a fresh inquest into her son's death which would be fully compliant with the European Convention on Human Rights.
The Ministry of Defence (MoD) said it was pleased the Supreme Court had upheld the appeal.
Air Chief Marshal Sir Jock Stirrup, chief of the defence staff, said: "This outcome is not about denying rights to our people, it is about ensuring that we have a clear and workable set of rules under which they can carry out their demanding and dangerous work.
"Within that context, commanders at all levels are committed to the safety of the men and women they lead.
"We will continue to do everything we can to keep our people from harm by providing the best possible equipment and training."
Defence Secretary Liam Fox said the government was committed to provide the "very best support and equipment" to UK troops.
He added: "Common sense has prevailed and it is of course right that commanders' orders given in the heat of battle should not be questioned by lawyers at a later date.
"It would have been absurd to try to apply the same legal considerations on the battlefield that exist in non-combat situations."
Pte Smith, from Hawick in the Scottish Borders, was 32 when he died while serving with the Territorial Army in Al Amarrah seven years ago.
An inquest later ruled that his death was caused by a "serious failure" in not recognising the difficulty he was having adjusting to the climate.
It prompted his family to begin a test case which led to a High Court ruling in 2008 that human rights laws could be applied to British troops in combat.
The UK government decided to appeal against that decision but that, in turn, was rejected by the Court of Appeal.
However, a final appeal to the Supreme Court has now proved successful.
John Wadham, group legal director at the Equality and Human Rights Commission, said it was "disappointed" by the decision.
"Soldiers are often required to lay down their life for their country and in return, should be afforded human rights protection," he said.
"Extending human rights protection is not about individual decisions in the heat of battle, but ensuring that when we send soldiers off to war they are properly prepared; kitted out correctly and with equipment fit for combat."