The Supreme Court's decision on Wednesday permits the new rule to go forward as legal action against it continues to go through the court system.
The vote was 7-2, with liberal Justices Ruth Bader Ginsburg and Sonia Sotomayor dissenting the decision, writing "Once again, the Executive Branch has issued a rule that seeks to upend longstanding practices regarding refugees who seek shelter from persecution".
According to the release from Mexico's Presidency, 70 percent of firearms used to commit crimes in Mexico came from the United States.
Central American countries, with the exception of Guatemala, have also declined to sign "safe third country" agreements that would mean the U.S. could send back asylum seekers who passed through without seeking protection.
The new policy would disallow asylum for anyone who passes through another country on the way to the USA without first seeking asylum there.
His conciliatory approach contrasts sharply with a line taken earlier this year by Trump, who tied immigration to economic policy by threatening crippling tariffs on all Mexican imports.
In reaching this finding, the district court noted that the administration failed to demonstrate that safely applying for and getting asylum in Mexico, where most would end up trying to do that, is even feasible.
Within hours of the ruling, senior administration figures said they would move instantly to implement the changes.
Mexico 'disagrees' with Trump asylum restrictions
"This lawsuit has been proceeding on three tracks: In this court, the parties have litigated the government's stay request. WIN for the Border on Asylum!"
There are questions over whether Mexico and Guatemala can cope with a surge in asylum claimants.
It is perhaps the biggest change to US asylum policy since it was established in 1980 and the most consequential move of President Donald Trump's crackdown on immigration, a signature issue as he heads into a re-election campaign.
Everyone at our border, except Mexican nationals, will be barred from safety.
The initial rule to block asylum sent shock waves among immigrant rights advocates when it was issued by the Trump administration in July of this year.
Sotomayor's dissent says the district court ruling "warrants respect", and, crucially, cites that aspect of it. Sotomayor agrees the rule may be "arbitrary and capricious for failing to engage" with "evidence contradicting its conclusions", adding that it's "especially concerning", because this will impact "some of the most vulnerable people in the Western Hemisphere".
With this policy in place, it doesn't take much of an imagination to see human-smuggling rings turning to ships to deposit asylum seekers on US soil without crossing through Mexico, in the process recreating in the Gulf of Mexico the kind of problems Europe is facing from migrants sailing across the Mediterranean from North Africa.
But it also represents an enormous setback for other asylum seekers, including large numbers of Africans, Haitians and Cubans who try to enter the United States by way of the Mexican border.
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