Michael Ross was only 15 when he shot Shamsuddin Mahmood, 26, in the head in Kirkwall’s Mumataz Restaurant.
He was jailed for a minimum of 25 years in 2008 after being convicted of murder.
Ross, who was an acclaimed sniper for the Black Watch, has been told by the Scottish Criminal Cases Review Commission there is not enough evidence to support a miscarriage of justice claim.
Karen Foubister, who leads the Justice for Michael Ross campaign group, said: “Michael is disappointed but not surprised.
“He has no reason to have had any confidence in legal processes up to now. However, he is optimistic for the future because he knows he is innocent as do his supporters.
“I spoke to him after he was informed on Wednesday and he is far from crushed. He has told us not to worry about him.”
Ross will have the opportunity of submitting an entirely fresh application to the commission if credible new evidence emerges.