Lead singer Dee Snider contended Mr Palmer used his band's 1980s hit as inspiration for a song Aussies Not Gonna Cop It, broadcast in a television advertisement for his United Australia Party in the 2019 federal election campaign.
But the businessman said the song was actually a rip-off of the Christmas carol O Come, All Ye Faithful.
In the Federal Court on Friday, Justice Anna Katzmann found in favour of Universal Music Publishing Pty Ltd and ordered Mr Palmer to pay $1.5 million in damages.
Snider had testified the use of his hit in a political ad campaign was "not good for my heavy metal image".
The judge also permanently restrained Mr Palmer from reproducing the song and ordered him to remove it from all online locations.