The council said it was not against the spirit of the constitution to allow the practice in some regions despite it being banned in most of the country.
France holds dozens of bullfights every year, with more than 1,000 animals killed annually in bouts that supporters defend as a local tradition and an important generator of tourism.
The council said the provision allowing bullfighting in the south was "precise, objective and rational", adding that "these traditional practices thus authorised do not infringe upon constitutional rights."
The anti-bullfighting group CRAC and animal-rights organisation DDA had asked the council to impose a nationwide ban by closing the loophole allowing the tradition to continue in southern areas.
Polls have generally indicated that about two-thirds of the French electorate would like to see bullfighting banned entirely, although the latest one published on Thursday found 48% in favour of a ban, 42% for the status quo and 10% with no opinion.
The sport has many passionate defenders, including Interior Minister Manuel Valls who enraged bullfighting opponents earlier this month by insisting it is a tradition that should be saved.
"It's something I love, it's part of my family's culture," said the minister who was born in Spain and moved with his family to France when he was a child. "It's a culture that we have to preserve."
Defenders have also pointed to the economic benefits of a sport that they say attracts large numbers of tourists to southern France, especially to hugely popular ferias in cities like Nimes and Arles.
The Arles Easter Feria, for example, attracts 500,000 visitors over six days, each spending about €100 ($130) a day, according to Christian Mourisard, the head of the city's tourist office.
Animal rights activists plan to continue their fight to have bullfighting banned, despite Friday's setback.
They are lobbying to have parliament enact a ban and are also considering a challenge to the practice through the European Court of Human Rights.