By Dan Levine

SAN FRANCISCO (Reuters) - A U.S. appeals court upheld California's ban on the use of affirmative action in university admissions on Monday, reaffirming that public schools cannot base admission on race, gender or ethnicity.

The ruling by the 9th U.S. Circuit Court of Appeals upholding so-called Proposition 209 comes as affirmative action resurfaces as a live issue at the top of the U.S. legal system.

"Today's ruling is good news for everyone who values fairness and equal opportunity, because Proposition 209 guarantees fair treatment for everyone, regardless of skin color, sex, or ethnic ancestry," Ralph W. Kasarda, who argued the case for the conservative Pacific Legal Foundation, said in a statement.

Proposition 209, passed by voters over 15 years ago, has prompted fierce debate for years in California. Opponents said it narrowed opportunities for women and minorities to succeed in the state. Supporters countered it simply created a system where individual ability was rewarded.

The plaintiffs in the California challenge argued that the number of African American, Latino and Native American freshmen at UCLA and U.C. Berkeley dropped by over 50 percent in the wake of Proposition 209.

However, a lower court judge dismissed the challenge, and on Monday a three-judge panel of the 9th Circuit affirmed that ruling.

The panel wrote it had already established a precedent on the issue when it upheld the affirmative action bar in a previous opinion in the 1990s, and said prior 9th Circuit caselaw had already taken falling minority enrollment into account.

An attorney for the plaintiffs, a group of high school and college students, could not immediately be reached late on Monday.

The issue of affirmative action will ultimately go to the U.S. Supreme Court, which agreed in February to decide if a state university may consider an applicant's race to achieve a more diverse student body, revisiting in an election year a divisive social issue it last addressed nine years ago.

In the case now under consideration, the high court agreed to hear an appeal by a white female applicant who was denied undergraduate admission in 2008 to the University of Texas at Austin. The Supreme Court is expected to hear arguments in the case in its upcoming term that begins in October.

(Reporting by Dan Levine; Editing by Cynthia Johnston and Lisa Shumaker)