U.S. District Judge Henry Hudson's decision stemmed from Virginia Attorney General Ken Cuccinelli's claims that Congress exceeded its authority under the Constitution's Commerce Clause by requiring citizens to buy health insurance or pay a penalty.
Hudson's ruling denied the Justice Department's attempt to have the lawsuit dismissed, saying further hearings must take place before he can weigh the merits of the case. An Oct. 18 hearing had previously been set in the case.
"Unquestionably, this regulation radically changes the landscape of health insurance coverage in America," Hudson wrote in his 32-page decision.
The Virginia General Assembly passed legislation this year exempting state residents from the federal coverage mandate. Hudson wrote that the attorney general had a right to defend that state law.
Cuccinelli announced in March that he would challenge the national law. More than a dozen other state attorneys general have filed a separate lawsuit in Florida challenging the federal law, but Virginia's lawsuit is the first to go before a judge.
Hudson said Virginia's case raises several complex constitutional issues - mainly whether Congress has the right to regulate and tax a person's decision not to participate in interstate commerce.
The health care law aims to ensure coverage for all, requiring most U.S. residents to carry health insurance starting in 2014.
Insurers would not be able to refuse insurance for sick people under the law, which also expands Medicaid to help the poor. It also provides tax credits to help middle-class residents pay premiums. People facing financial hardship would be exempt from the coverage requirement. However, people who can afford insurance but refuse to sign up would face a tax penalty.
On Monday, Health and Human Services Secretary Kathleen Sebelius told reporters during a teleconference that Hudson's decision was a procedural step.
"That just means there will be a full hearing on the arguments. We remain confident that the case is solid and there is full constitutional backing for the passing of the Affordable Care Act," she said.
Sebelius said Hudson's ruling will "move us to the merits of the debate."
Cuccinelli said he was pleased with the judge's ruling.
"This lawsuit is not about health care, it's about our freedom and about standing up and calling on the federal government to follow the ultimate law of the land - the Constitution," he said in a statement.
Republican Gov. Bob McDonnell, a former state attorney general who enthusiastically supported Cuccinelli's challenge, was pleased with Hudson's ruling.
"It is meritorious and constitutionally correct. The requirement that all Americans must purchase health insurance or face a penalty is not permitted under the Commerce Clause of the United States Constitution," McDonnell said.
Shortly after he took office in January, McDonnell signed into law the legislation intended to block the requirement that individuals buy health insurance. It was the first such legislation in the U.S. to take effect as a state law.
Last month, Hudson heard more than two hours of arguments in the case.
The state argued that refusing to buy something is commercial "inactivity," not activity that can be regulated. Federal prosecutors have argued that the relevant commercial activity is the purchase of health care services, not insurance.