Habyarimana faces charges of complicity in genocide and crimes against humanity in Rwanda for his alleged part in the mass killings of 1994, which claimed some 800,000 victims.
But the court in Toulouse, where he now lives, turned down a call for extradition on the grounds that the crimes were not offences at the time and laws can not be applied retroactively, according to his lawyer Ludovic Rivière.
A group of Rwandan plaintiffs, the CPCR, reacted angrily to the ruling.
"France never reacts positively to extradition applications while all other countries do," said its president Alain Gauthier.
The retroactivity argument is not valid, he argued, claiming that some high-profile trials of former Nazi collaborators would not have taken place if it was applied in France.
Gauthier said he hoped that Habyarimana would be brought to trial in France.
Habyarimana, who managed the tin workshop of a monastery in Gihingamuyaga, in the south of the country, has been accused of identifying monks of the Tutsi ethnic group so that they could be murdered, involvement in the massacre of refugees and acts of genocide in a convent's health centre.