US citizen Knox and her former boyfriend Raffaele Sollecito - originally sentenced to 26 and 25 years in prison for killing Kercher - were acquitted on appeal in 2011 after four years behind bars, but then found guilty again in a shock about-turn by a Florence court in January.
Explaining its decision on Tuesday, the court said in its reasoning that there was DNA proof that three people were at the murder scene: Knox, Sollecito and a third person, Ivory Coast-born drifter Rudy Guede, who is the only person still in prison for the crime.
Kercher, who lived with Knox, was frequently irritated by her behaviour and when her Seattle-born housemate invited Guede into the apartment that night the situation escalated, the court said in the 337-page explanation, according to Italian media reports.
Knox disputed the court's findings, issuing a statement that said: "I was found innocent by the only court in Italy that retained independent forensic experts to review my case."
The newly released court document "does not - and cannot - change the fact of my innocence," she added.
Guede "behaved impolitely" and an annoyed Kercher interrupted an "intimate moment" between Knox and Sollecito to complain, it said.
"The cohabitation had reached such a level of exasperation" that the argument quickly escalated, with Guede, Knox and Sollecito "collaborating to immobilize Meredith and use violence against her," it added.
Guede - whose DNA was found inside Kercher's body - was driven by "sexual instinct", while Knox and Sollecito "wanted to prove their power over Meredith and humiliate her", stabbing her with two knives.
The larger of the two knives, "which produced the wound on the left part of the neck and from which spurted most of the blood which caused Meredith Kercher's death, was held by Amanda Knox," it said.
The other was wielded by Sollecito, who cut through Kercher's bra strap, inadvertently planting the only piece of DNA evidence which links him to the scene, it added.
Investigators have long insisted that 47 knife wounds on Kercher and the apparent use of two different knives in the attack pointed to more than one killer.
Kercher was found in a pool of blood in November 2007, half-naked and with her throat slashed in her bedroom at the house in the university town of Perugia that she shared with Knox.
Prosecutors had alleged that Kercher was killed in a drug-fuelled sex attack, claiming Knox delivered the final blows while Sollecito and Guede held the victim down.
But the Florence court ruled out the theory, saying that Kercher was not the type of girl to have engaged in such antics.
The trial will now go back to Italy's highest court, which could uphold or overturn the verdict.
If it upholds it, officials are expected to begin the lengthy process to extradite Knox from the United States, where she returned on her release from prison in 2011.