Maria Elvira Pinto Exposto was exonerated by the High Court last December on grounds that she didn't know there were 1.5 kilograms of crystal methamphetamine in her bag when she was arrested in December 2014 at Kuala Lumpur's global airport.
She said she had been fooled into carrying the bag after travelling to China to see someone she met online called "Captain Daniel Smith", who had claimed to be a United States serviceman.
Malaysia has a mandatory death sentence for anyone found guilty of carrying more than 50 grams of a prohibited drug.
Court of Appeal judge Mohtarudin Baki, told Ms Exposto: "The only sentence under the law is death by hanging". He said they would be appealing in the federal court.
A Malaysian High Court judge ruled at the time that Exposto wasn't aware she was transporting the drugs and had fallen victim to an online romance scam.
Exposto, from Sydney, said she did not know the drugs were there, and had voluntarily put the bag through the airport scanner during a stopover in Kuala Lumpur.
An Australian grandmother has been sentenced to death in Malaysia for attempting to smuggle drugs from Shanghai to Melbourne.
However, she was unable to leave the country after case prosecutors made a decision to repeal the case, asking that the older woman instead be sentenced to death.
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Maria Elvira Pinto Exposto's lawyers said a three-judge panel unanimously threw out the previous ruling.
She said yes. Then, while changing flights at Kuala Lumpur International Airport, she mistakenly went through immigration.
Mrs Exposto was married at the time but her relationship with her husband was getting "a bit sour" when her online boyfriend asked her to marry him in September 2013.
"I can confirm a notice of appeal has been filed with the court", a lawyer with Muhammad Shafee Abdullah, who represents Exposto, told AAP.
Exposto's lawyer called the reversal of judgment "perverse" and said he plans to appeal the ruling.
The lawyers claimed she did not know the drugs were there, saying she had "never seen drugs in her life", and volunteered her bag to be scanned by an airport X-ray machine.
Three Australians have been hanged for drugs offences in Malaysia since 1986.
There are at least 900 people on death row in Malaysia, officials have said, but executions have been rare in recent years.