Critics of the decision by the U.S. 10th Circuit Court of Appeals in Denver decried it as a threat to all cities and farmers served by federal water projects.
Albuquerque Mayor Martin Chavez said it takes "water from the mouths of this city's children" and puts the city's future water supply in jeopardy.
The decision upheld a federal judge's ruling in September that water in Heron Reservoir - in north-central New Mexico, about 20 miles south of the Colorado border - should be used to help the tiny fish.
The silvery minnow was once one of the most abundant fish in the Rio Grande Basin, but in recent years biologists have had to rescue hundreds of fish from the river because it has gone dry.
In his September ruling, Judge James Parker said federal agencies should consider using water stored in the reservoir for the fish. He said the Bureau of Reclamation, which manages dams and reservoirs, can reduce deliveries of water under its contracts with irrigation districts and cities to comply with the Endangered Species Act.
Attorney General Patricia Madrid and Gov. Bill Richardson pledged to fight the case to the Supreme Court, if need be.
"This case involves one pivotal question: Who controls New Mexico's water, New Mexico or the federal government?" Madrid said. "To me the answer will always be New Mexico."
The Fish and Wildlife Service and Bureau of Reclamation also had appealed Parker's ruling. Federal attorneys argued that the Endangered Species Act doesn't give the Reclamation Bureau discretion to deliver less than the full amount to those who contract for water.
By Sue Major Holmes