Circuit Judge Jane Marum Roush said Malvo, 18, can still go forward with his insanity defense on the basis he was brainwashed by convicted sniper John Allen Muhammad.
But the judge denied a defense request to give the jury instructions on how an irresistible impulse relates to insanity. The law states that if a criminal cannot control an irresistible impulse, he could be considered legally insane.
Malvo and Muhammad, 42, are accused of carrying out a three-week sniper spree in the Washington D.C. area last year, leaving 10 people dead.
Malvo is on trial for one of the killings — that of FBI analyst Linda Franklin — and faces the death penalty if convicted. In a separate trial last month, Muhammad was convicted of another of the killings and a jury recommended a death sentence.
Roush agreed with prosecutors who argued there is no evidence that the meticulously planned sniper killings were the result of an impulse.
"There's just no middle ground," said prosecutor Robert F. Horan Jr. "There is no evidence it was an impulse killing."
Closing arguments were expected later Tuesday after the jury is given legal instructions. The jury can then begin deliberations on whether to convict Malvo of capital murder for Franklin's slaying on Oct. 14, 2002.
The jury instructions will also say that suspicion or probability of guilt is not enough, but a conviction can be made on circumstantial evidence, reports CBS News Producer Jeff Goldman.
The defense has argued that Malvo was brainwashed by Muhammad, causing him to blur the distinction between right and wrong. But two prosecution psychologists testified Monday that Malvo was not mentally ill and knew right from wrong during the shooting spree.
Psychologist Evan Nelson, who met Malvo several times last month for a total of 15 hours, said Muhammad "had a tremendous influence on this young person, absolutely." But it wasn't brainwashing, Nelson said; instead, Malvo idolized Muhammad.
"He felt like it was a partnership," Nelson said.
Nelson also said Malvo's behavior, which included meticulous planning of the killings, "is the antithesis of someone who cannot control his impulses."
"In my opinion, he very clearly possessed the capacity to tell the difference between right and wrong as he was committing these offenses," Nelson said.
Both Nelson and psychologist Stanton Samenow described Malvo as bright. Nelson suggested that Malvo's intelligence would make it easy for him to feign mental illness.
Samenow, who interviewed Malvo eight times last month for a total of more than 34 hours, said Malvo described himself as independent and emotionless and "nobody's fool."
"Mr. Malvo knows exactly what he is doing," Samenow said. "He knew what he was doing with me. He said to me that he is not impressionable."
Both the prosecution and the defense rested Monday.