Moussaoui, who is representing himself in his trial, wants to question Ramzi Binalshibh as part of the preparation for his defense.
The Justice Department's refusal to obey the court order could mean that the charges against Moussaoui could be dismissed, and his case sent instead to a military tribunal.
U.S. District Judge Leonie Brinkema also has lesser options, including dismissal of only some of the charges, restriction of government evidence, or a jury instruction that could be damaging to the government's case.
The Justice Department Monday, in explaining its refusal to obey the federal court order, said allowing Moussaoui to question Binalshibh "would involve an admitted and unrepentant terrorist (the defendant) questioning one of his al Qaeda confederates, would necessarily result in the unauthorized disclose of classified information."
The Justice Department said furthermore that "such a scenario is unacceptable to the government, which not only carries the responsibility for prosecuting the defendant, but also of protecting this nation's security at a time of war with an enemy who already murdered thousands of our citizens."
Moussaoui has admitted he's an al Qaeda loyalist, but denies having been part of the Sept. 11 plot.
The department's defiance is almost certain to trigger intervention by the 4th U.S. Circuit Court of Appeals, but not immediately. The full court voted 7-5 on Monday to deny, for now, reconsideration of a three-judge panel's refusal to step in at this stage.
However, the appellate court said it would expedite consideration of the government's appeal.
While the appellate ruling was only procedural at this point, chief Judge William Wilkins warned that the court would not blindly accept government claims of national security in the refusal to produce suspected Sept. 11 coordinator Ramzi Binalshibh.
"Siding with the government in all cases where national security concerns are asserted would entail surrender of the independence of the judicial branch and abandonment of our sworn commitment to uphold the rule of law," Wilkins said.
The government said it recognizes that its objection means the deposition of suspected Sept. 11 terror plot organizer Ramzi Binalshibh cannot go forward. The Justice Department's decision also "obligates the court now to dismiss the indictment unless the court finds that the interests of justice can be served by another action," the prosecution filing said.
If the court considers an alternative to dismissal, prosecutors asked that they be heard before action is taken. The government also asked Brinkema to postpone any action pending a ruling by the appellate court.
Brinkema has ruled that Moussaoui, who is representing himself, should be allowed to question Binalshibh via a satellite hookup. The exchange, which the government is desperately trying to stop, could be played to jurors if Moussaoui's case goes to trial.
Brinkema had concluded Binalshibh may support Moussaoui's contention that he was not part of the Sept. 11 conspiracy.
The eventual outcome of this dispute could affect future cases by deciding whether terrorism defendants will have access to enemy combatants, especially those, like Binalshibh, who are being held in secret locations overseas.
Should the courts favor a defendant's access to potential witnesses over national security, the government could decide the Moussaoui case, and future terrorism proceedings, should be prosecuted by military tribunals.
Robert Precht, a defense lawyer in the 1993 World Trade Center bombing case and currently a dean at the University of Michigan's law school, notes that transferring the case to a military tribunal completely changes the rules when it comes to the rights of the defendant.
"Once you take this out of the civilian system, all bets are off," says Precht. "All constitutional rights that are familiar to us are simply not applicable. What limited rights the military does give are totally at the government's mercy."