The Court of Arbitration for Sport said in a ruling published Monday that the British Olympic Association's bylaw was invalid because it fails to comply with the World Anti-Doping Agency code.
A three-man CAS panel said a lifetime ban from the Olympics amounts to a second sanction after an initial doping ban. The BOA had argued that it was an eligibility issue rather than a sanction.
The CAS decision was in line with its ruling in October, when it threw out the International Olympic Committee rule that would have barred athletes who had received drug bans of more than six months from competing in the next games.
"WADA regrets the many hysterical and inaccurate public statements from the BOA in the course of challenging the WADA decision," WADA President John Fahey said in a statement. "WADA has spent the last decade harmonizing the fight against doping in sport across the world by creating one set of rules."
Monday's ruling means that Chambers and Millar are now eligible to compete for Britain at the July 27-Aug. 12 London Olympics.
Chambers, who won a bronze medal in the 60 metres at the world indoor championships in March, served a two-year ban after testing positive for the steroid THG in 2003 but can now try to make the British team at the Olympic trials in July.
UK Athletics said it supported lifetime Olympic bans but "welcomes the clarity the CAS decision brings to this issue."
"Athletes affected by the ruling are now eligible for the team, in both individual and relay events, and will be subject to the same selection criteria and process as every other British athlete," UK Athletics said in a statement.
Millar was suspended in 2004 for two years after testing positive for the blood-boosting agent EPO.
"Our team for the games is being selected in June and across all disciplines we'll pick the team based on which riders are fit and available, and who we believe have the best chance to deliver medals," British Cycling said in a statement. "Ahead of that we won't be speculating on who may or may not be selected."
CAS said its rulings underlined the international sports movement's commitment to harmonized anti-doping rules and policies laid out in the WADA code.
"All signatories have agreed to comply .... without any substantial deviation in any direction," CAS said.
The panel said the IOC and BOA are still free to try to persuade other bodies that an extra sanction involving a ban from the Olympics "may be a proportionate, appropriate sanction" that could be part of a revised WADA code in the future.
"At the moment the system in place does not permit what the BOA has done," CAS said.
In recent months, BOA chairman Colin Moynihan has been harshly critical of WADA, accusing it of failing to catch the world's biggest drug cheats and of dragging the doping fight into a "dark age." He called for an independent review of the Montreal-based body.
Ordering the BOA to pay some of WADA's legal costs, CAS said the appeal was "unnecessarily increased by the voluminous and largely irrelevant submissions and evidence submitted by the BOA on this appeal."
CAS said Moynihan "contradicted" a claim that the purpose of the bylaw was not to punish cheating when he stated that the "use of banned performance enhancing drugs ... is the most heinous reprehensible form of cheating in sport."
AP Sports Writer Stephen Wilson contributed to this report.Suggest a correction