"From today, the ruling on a criminal prosecution of Vavilov comes into legal force," said the court's decision, which rejected an appeal of Vavilov's lawyers.
The ruling thereby sanctions Vavilov's prosecution despite his parliamentary immunity, which is allowed under Russian law.
Prosecutors accuse Vavilov and a number of bankers of creating a criminal group in 1997 and embezzling $231 million in a deal on MiG fighter deliveries to India.
A controversial oil magnate, Vavilov, 46, was the first deputy finance minister in 1994-97 under former President Boris Yeltsin, and controlled the funds allocated for Yeltsin's second presidential campaign in 1996.
Vavilov was one of the architects of the Russian stock market and formerly owned the Severnaya Neft oil company. He currently represents the Penza Region of European Russia in the upper house of parliament.
On January 10, the Supreme Court ruled that Vavilov's actions could be classified as criminal and consented to his prosecution for the first time. Vavilov's lawyers appealed the decision, which made his arrest impossible until the court's new ruling.
Vavilov's lawyer, Alexander Muranov, said he would file a supervisory appeal against the Supreme Court's second ruling, and added that his client could not be charged, prosecuted or arrested until he is deprived of immunity.
"I will certainly send a supervisory appeal against this ruling of the Supreme Court because I find the decision absolutely illegal and unsubstantiated," Muranov said.
In early February, Speaker of the Federation Council Sergei Mironov said the prosecutor's office had sent no official request to the upper house of parliament to strip Vavilov of parliamentary immunity.
"We have received no official documents from the prosecutor's office," he said.
Last month, Muranov said the case against his client was first opened in the 1990s.
"The case against my client was opened in the 1990s but closed in 2000 for 'absence of a crime' in Vavilov's actions," he said. "Prosecutors resumed the investigation in November 2006."
