Chief US District Judge John McConnell ruled the Department of Transportation lacked the authority to make the demand, and that the condition violated the US Constitution.
McConnell said the administration provided no plausible connection between cooperating with immigration enforcement and the purposes Congress intended for the funding, which is to support highways, bridges and other transportation projects.
"Congress did not authorise or grant authority to the Secretary of Transportation to impose immigration enforcement conditions on federal dollars specifically appropriated for transportation purposes," McConnell wrote.
The judge, an appointee of Democratic President Barack Obama, issued a preliminary injunction preventing such a condition from being enforced against the 20 states that sued along with their government subdivisions, like cities.
The Trump administration did not respond to a request for comment. It has argued the policy was within the department's discretion.
The ruling came in a lawsuit filed by a group of Democratic state attorneys general who argued the administration was seeking to unlawfully hold federal funds hostage to coerce them into adhering to the Republican president's hardline immigration agenda.
They sued after US Transportation Secretary Sean Duffy notified states in April they could lose transportation funding if they didn't cooperate with the enforcement of federal law, including efforts to enforce immigration law.
Since returning to office on January 20, Trump has signed several executive orders that have called for cutting off federal funding to so-called sanctuary jurisdictions that do not cooperate with Immigration and Customs Enforcement, as his administration has moved to conduct mass deportations.
Sanctuary jurisdictions generally have laws and policies that limit or prevent local law enforcement from assisting federal officers with civil immigration arrests.
California Attorney General Rob Bonta, in a statement, hailed McConnell's ruling, saying Trump had been "treating these funds – funds that go toward improving our roads and keeping our planes in the air – as a bargaining chip."
