(Adds quotes from lawyer, background)

By Aziz El-Kaissouni

CAIRO, March 17 (Reuters) - An Egyptian court rejected on Monday a bid to free jailed opposition politician Ayman Nour on health grounds, and Nour's lawyer issued a plea for President Hosni Mubarak to pardon the one-time presidential contender.

The decision was issued by Cairo's Supreme Administrative Court, which was ruling on 43-year-old Nour's appeal against dismissals of his request for freedom.

Nour, who suffers from diabetes and has had heart problems while in jail serving a fraud conviction, unsuccessfully challenged President Hosni Mubarak in Egypt's first multi-candidate presidential elections in 2005.

Amir Salem, the lawyer who defended Nour in his trial and had been trying to secure his release on health grounds, said after the ruling he was calling for Mubarak to pardon Nour.

"Oh President of the Republic, I'm calling on you, out of political judiciousness ... release this person," he said.

Nour, who came in a distant second in the 2005 race, is serving a five-year sentence on charges of forging documents. He says authorities fabricated the case to exclude him from politics.

Salem said a presidential pardon, if issued, would mean Nour would not be allowed to participate in politics.

"In accordance with a release or pardon by the president, he will not exercise political rights. He won't fight anyone ... he would be released to treat him and take care of his health," Salem told journalists.

In Nour's absence the liberal and secular Ghad (Tomorrow) party he founded has struggled to survive.

Political analysts said the government wanted Nour out of the way to pave the way for Mubarak's son Gamal to succeed his father as president. Gamal denies having presidential ambitions. (Writing by Will Rasmussen, editing by Mary Gabriel)