U.S. District Judge Loretta Preska announced her finding late Monday in the case of Susan Lindauer, who was arrested in 2004 on charges including conspiring to act as a spy for the Iraqi intelligence service. The charge carries a potential prison sentence of up to 25 years.
Lindauer, 45, had worked in the press offices of several members of Congress and as a magazine journalist.
Preska said she based her decision largely on the testimony of psychiatrist Stuart Kleinman, who was brought into the case by prosecutors.
"I agree with Dr. Kleinman's evaluation that Ms. Lindauer continues to suffer from a mental disorder which so impairs her thinking ... that she remains incompetent to stand trial," the judge said.
Kleinman said Lindauer has a serious, long-standing mental disorder that includes grandiose delusions, such as the belief that Osama bin Laden told her about a hidden bomb.
Rebekah Carmichael, a spokeswoman for prosecutors, said the office had no comment. A hearing was scheduled for October to decide what happens next in the case.
Her lawyer, Brian William Shaughnessy, said his client "was disappointed." Lindauer, who has said she wanted to clear her name, said that it was "terribly wrong" that she was not being allowed to go to trial.
She was jailed for about a year but was released from custody in 2006 after another judge ruled that the government couldn't force her to be medicated for her delusions so she could stand trial.
In agreeing with the psychiatrist's finding, Preska noted the defendant once stuffed tissues into her mouth when she was admonished not to speak out during a hearing without consulting her lawyer.
Lindauer is a distant relative of President Bush's former chief of staff Andrew Card. She also has worked in the press offices of four Democratic members of Congress and as a journalist for two magazines, two newspapers and a television news company.
Her father, John Lindauer, once owned an Alaska newspaper chain and ran for the state's governorship in 1998.