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A High Court judge granted Tun Dr Mahathir's application to strike the case out before it even went to trial, saying the suit had no leg to stand on, and was an abuse of the court process.
Neither politician was in court yesterday.
Datuk Seri Anwar had sued Tun Dr Mahathir last January for RM100 million (S$44 million) after the former premier described him as 'gay' in September 2005. Tun Dr Mahathir made the remark while responding to reporters' questions on why he had sacked his then deputy in 1998.
The defamation suit had only completed its preliminary stage when Tun Dr Mahathir successfully applied for it to be thrown out.
A court showdown would have been the first face-to-face clash between Datuk Seri Anwar and the man who sacked him in 1998 and had him charged with corruption and sodomy.
But the ruling is unlikely to dent Datuk Seri Anwar's political comeback, as the the'gay' allegations have been heard by the public since he was sacked nine years ago.
He criticised the ruling, saying in a statement that it was a 'gross injustice' to him and his family.
'I am compelled to say that this decision is utterly devoid of any legal merit,' he said.
He was jailed for six years and released in 2004.
He is keen to clear himself of the homosexual accusations as he prepares to lead his opposition Parti Keadilan Rakyat into the general election that could be held soon.
Judge Tengku Maimon Tuan Mat said the case was not sustainable as it was identical to a failed suit filed by Datuk Seri Anwar against Tun Dr Mahathir in 1999.
She also noted that the Federal Court had made a 'specific finding of homosexuality' between Datuk Seri Anwar and his adopted brother Sukma Darmawan Sasmitaat Madja, although it had acquitted them of sodomy in 2004.
The Federal Court had noted: 'We find evidence to confirm that the appellants (Anwar Ibrahim and Sukma Darmawan) were involved in homosexual activities and we are more inclined to believe that the alleged incident at Tivoli Villas did happen.'
She said no purpose was served in allowing the defamation suit to go to full trial as it was bound to fail.
The former deputy premier's lawyer Sankara Nair told reporters outside the court: 'He is indeed quite upset and has instructed that an appeal be filed to the Court of Appeal immediately.'
The suit is yet another unsuccessful attempt by Datuk Seri Anwar to haul Tun Dr Mahathir to court.
A previous one challenging his sacking also failed to make headway in court.
But the latest judgment came as a somewhat surprising turn as Datuk Seri Anwar has been winning a series of important cases related to his sacking since his release from prison in 2004.
In August 2005, he won RM4.5 million in damages against author Khalid Jafri, who had penned a book that led to his downfall.
The book, Fifty Reasons Why Anwar Ibrahim Cannot Become Prime Minister, listed his alleged wrongdoings, from corruption to adultery.
Also in August 2005, Datuk Seri Anwar won an apology from ex-police chief Rahim Noor for an infamous black eye the latter gave him in police custody in 1998.
Tun Dr Mahathir's lawyer V.K. Lingam said he believed yesterday's decision was a right one but he was not surprised at Datuk Seri Anwar's decision to appeal.
