Flosse, who last year lost office because of a corruption conviction, says he was defamed because the journalists made a link between him and the 1997 disappearance of a Tahiti journalist, Jean-Pascal Couraud.
The court has ruled that Le Monde exercised the normal right of media freedom.
Flosse’s lawyer, however, had argued that there was a difference between press freedom and freedom to smear.
He said the article made no mention of the two former militia members accused of kidnapping the journalist while it showed a picture of Flosse.
The militia was under Flosse’s control and his espionage unit had placed the journalist under surveillance.
In 2004, Flosse swore in the territorial assembly that he had never ordered anybody’s death.
The police probe into the alleged kidnapping is in its 11th year amid expectations that the case could go to trial soon.