The Swiss club said they withdrew the appeal after the league confirmed that their six new summer recruits will be allowed to play, in line with a court order.
"Having received confirmation that it can add its new recruits to the line-up, FC Sion has withdrawn its appeal from CAS," said the club.
However, Sion remain excluded from the Europa League after UEFA found they fielded ineligible players in a qualifying match with Scottish side Celtic, who were promoted to the competition in their place.
The club have taken the case before several Swiss courts, with a regional court in the Canton of Vaud expected to deliver their verdict this week.
In July, the Swiss Football League had said that Sion's six new players were ineligible for the competition.
But the league reversed its decision after a civil court on August 3rd ordered it to reconsider its initial position and to allow the new signings to play.
After hearing both parties, the civil court in Martigny, Valais canton in September confirmed the verdict and rapped the league for the "anarchy" that had arisen due to poor management of the case.
The Swiss league subsequently authorised the new signings to play in a letter dated September 30th, leading Sion to withdraw their appeal to world sport's top court CAS.
However, in a statement issued late on Monday, the league said that while it has allowed the players to participate in the local league competition, they are "not qualified for the Swiss Football League as indicated by certain sources."
"For the qualification of non-amateur players, only the eligibility commission of the SFL has the statutory competence," it said.
The league said that it was simply abiding by the Martigny court order in allowing the players to participate in the competition.
It added that it will file an appeal in coming days against the Martigny court decision.