The panel lead by Justice Arifin Zakaria dismissed the attempt to nullify the Attorney General-Chambers (ACG) to appoint Shafee, finding no reason to interfere.
"The proper mode of challenge is by judicial review," said Justice Arifin Tuesday.
This was Anwar's third attempt to disqualify the veteran lawyer from leading the prosecution team in the main appeal.
However, the five-man Federal Court panel disagreed, saying the fine did not disqualify him as a lawyer.
"The AGC found him a fit and fine person to represent the prosecution.
"We are of a firm view Shafee as a prosecutor would not compromise the integrity of proceedings," said Justice Arifin.
The panel on Tuesday also included Justices Md Raus Sharif, Abdull Hamid Embong, Suriyadi Halim Omar and Ahmad Maarop.
Anwar was represent by lawyer Tommy Thomas, while Shafee acted for himself.
Anwar had first challenged the legality of Muhammad Shafee’s appointment by the Attorney-General by fiat (authorisation) under Section 376 (3) of the Criminal Procedure Code (CPC).
However, this was dismissed by the Federal Court on Nov 20, last year.
His second application to disqualify Muhammad Shafee, based on a statutory declaration (SD) by former Kuala Lumpur Criminal Investigation Department chief Datuk Mat Zain Ibrahim, was also dismissed by Federal Court on Feb 11, this year.
These cross appeals were in regards to the main appeal involving Anwar's second sodomy case.
Anwar is applying to the Federal Court to acquit himself of his sodomy conviction by the Court of Appeal.
Concurrently, the prosecutor sought to increase his jail sentence from the current five years.
Anwar, 67, was acquitted by the High Court on Jan 9, 2012 for allegedly sodomising Mohd Saiful Bukhari Azlan, his former aide, at Desa Damansara Condominium in Bukit Damansara on June 26, 2008.
However, the Court of Appeal overturned the acquittal and sentenced Anwar to five years in prison for the offence.