Lai, 76, the founder of the now-shuttered pro-democracy newspaper Apple Daily, was charged with conspiracy to publish seditious publications under a colonial-era law.
Lai's lawyer Robert Pang had argued the sedition charge should be dismissed as the prosecution failed to lay the charge within six months of the alleged offence.
Pang pointed out that Lai was only taken to court and officially charged on December 28, 2021 - four days after the deadline.
Jimmy Lai has been charged with conspiracy to publish seditious articles under a colonial-era law. (AP PHOTO)
The three government-appointed judges in the trial - Esther Toh, Susana D'Almada Remedios and Alex Lee - said a time limit did not apply as the conspiracy was "a continuing offence and therefore the time limitation did not start to run until after the last date of the alleged conspiracy".
"The court ruled that the prosecution of the sedition charge against the defendants was not time-barred," the judges said in a summary of their judgement.
"Therefore, the court had jurisdiction to try the defendants on the sedition charge."
According to the prosecution, Lai and Apple Daily published a total of 161 seditious articles between April 1, 2019, and June 24, 2021 - until the newspaper ceased publication following a police raid, a freeze on its assets and arrests of former staff crippled its operations.
Besides the sedition charge, Lai also faces two conspiracy to collude with foreign forces charges - including calling for sanctions against Hong Kong and Chinese officials - under a China-imposed national security law that could result in him being jailed for life.
Lai has pleaded not guilty to all charges.
After being detained for more than 1000 days, Lai's trial finally kicked off earlier this month amid mounting diplomatic pressure.
The British and United States governments have called for Lai's immediate release and said the trial was politically motivated.
The trial comes as the city prepares to enact a new round of national security laws in 2024 known as Article 23 which will further tighten China's grip, and include counter-espionage legislation that could strengthen official control over foreign institutions.
The trial has been adjourned to January 2 and it is expected to last 80 days.
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