2 August 2011 Last updated at 15:49 GMT
The Court of Appeal had ruled the sacking of Ms Shoesmith was "procedurally unfair" The Supreme Court has refused to grant officials leave to appeal against the decision that Sharon Shoesmith was unfairly sacked after Baby P's death.
The Department of Education and Haringey Council had sought permission to attempt to overturn the ruling.
In May, the Court of Appeal found that the sacking of Ms Shoesmith - the head of children's services in Haringey - had been "procedurally unfair".
Peter Connelly had been seen 60 times by authorities before he died in 2007.
A year later, Belfast-born Ms Shoesmith learned of her sacking in a live televised press conference by then-Children's Secretary Ed Balls, bringing her 35-year career to an abrupt end.
Her lawyers had argued that she was the victim of "a flagrant breach of natural justice" after she lost her ?133,000-a-year post amid a media storm.
Ms Shoesmith's appeal in May of this year challenged the original High Court ruling that cleared Mr Balls, the north London borough of Haringey and watchdog Ofsted of acting unlawfully.
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This judgment creates a serious and worrying constitutional ambiguity which now requires urgent action ”
End Quote Ed Balls, former children's secretary The Court of Appeal judges dismissed her appeal against Ofsted, but ruled her dismissal by Haringey and Mr Balls was "tainted by unfairness" because she had not had the chance to put her case to the children's secretary.
In a statement today, Mr Balls said he was "surprised and concerned" that permission to appeal had been denied and claimed children could be at risk if ministers' power to remove senior staff was in doubt.
"This judgment creates a serious and worrying constitutional ambiguity which now requires urgent action from the government to resolve," said Mr Balls.
"Ministers need to be able to exercise their legal duties and make judgements in the public interest... That is what I did - and I am concerned that this judgment will make it harder for ministers to do so in future."
The former children's secretary reiterated that he sacked Ms Shoesmith based on an independent report that had revealed "catastrophic management failures on a devastating scale".
The Department for Education also expressed its regret at the Supreme Court's decision and said it still believed sacking Ms Shoesmith had been the right decision.
Haringey Council added that it was "bitterly disappointed" with the Supreme Court's decision.
"We believe we have acted properly throughout the process and stand by everything we have done," said a spokesman.
Ms Shoesmith, who has previously admitted having suicidal thoughts over the tragedy, could now be in line to receive a compensation payout for loss of salary and pension rights.
Seventeen-month-old Baby P, subsequently identified as Peter Connelly, was found to have suffered fractured ribs and a broken back after months of abuse at home.
His mother, her partner and a lodger were all jailed for causing or allowing his death in August 2007.
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