The CAS panel called for organisers to expand that competition to 21 teams so the last-qualified Irish team would not be denied their place as a result.
The frosty fight hinged on the wording within the sport's ruling body's qualification criteria.
Australia claimed FIBT had not applied its qualification system correctly and should have admitted Astrid Loch-Wilkinson and Cecilia McIntosh on the basis that they were their continent's only entrants and met minimal performance criteria.
The Irish team of Aoife Hoey and Claire Bergin was the last team qualified on the basis of performance and the Irish Olympic Council argued that the continental representation rule was applicable only at reallocation of unused quotas.
A CAS panel heard the case on Monday afternoon in Vancouver and found that "the clear wording of the qualification system implemented by the FIBT reflected the intention of representation by one men's bob team and one women's bob team from non-represented continents and could not be interpreted otherwise than as formulated".
Consequently, CAS ordered the FIBT to allocate a "continental representation quota place" to the Australians.
"Nevertheless, considering the situation of the Irish athletes, who expected legitimately to be entitled to participate in the Olympic Winter Games 2010 after their entry had been validated by the FIBT and the IOC, the CAS Panel has recommended to the IOC and VANOC the inclusion of a 21st team in the women's bobsleigh event."
"It would be outrageous if those girls were stripped of their accreditation and sent back home to Ireland," Olympic Council of Ireland president Patrick Hickey had told Olympic publication, Around the Rings.
"We're already suffering from the football (situation) of (France's) Thierry Henry scoring a goal with his hand and eliminating us from the World Cup finals. And if something like this happened it would be a catastrophe altogether."