Luciano Aviello, who told the court she wanted to be referred to as "Luciano Lucia", served time in prison with Knox's co-accused Raffaele Sollecito.
She was testifying for a second time, having done so already at the original trial before retracting the testimony and being charged with perjury.
But Aviello returned to the original accusation on Friday saying that her brother killed Kercher in the university town of Perugia during a random burglary.
"My brother is the guilty one, not Amanda or Sollecito," said Aviello, who is still in prison in an entirely separate case.
The testimony has already been widely dismissed as unreliable and lawyers questioned why the appeal court judges had decided to re-hear it.
Kercher was found in a pool of blood in the house she shared with Knox on November 2nd, 2007, her body riddled with stab wounds in a murder that experts said had to be carried out by more than one person.
Ivory Coast-born drifter Rudy Guede, who like the other two has always denied the murder, is the only person still in prison for the crime.
Neither Knox nor Sollecito were in court, although Sollecito's lawyer Giulia Bongiorno said he would address the court at an unspecified future date.
Knox and Sollecito served four years in prison before being acquitted on appeal in 2011 in a sentence that was rejected by Italy's supreme court this
year following an appeal by prosecutors.
Knox, 26, has insisted she will not return to Italy saying she had been depicted as "a sex fiend" and "a young, unscrupulous liar".
The prosecution has said that the murder was the result of "an erotic game that spun out of control" — a hypothesis the supreme court suggested was valid and asked the retrial to probe.
The court on Friday also decided that new DNA tests on a kitchen knife believed by prosecutors to be the murder weapon would be carried out next week if there is sufficient trace for the exam.
The result of the DNA testing on the knife, which was recovered from Sollecito's house, would have to be submitted to the court by October 31st ahead of the next hearing in the case on November 6th.