The Entertainment Software Association, Video Software Dealers Association and Michigan Retailers Association, trade groups representing U.S. computer and video game publishers, filed the suit in September, charging that the law is unconstitutionally vague and violates the First Amendment right to free speech.
Gov. Jennifer Granholm signed the law in September, and it was scheduled to take effect Dec. 1. But U.S. District Judge George Steeh issued a preliminary injunction in November, preventing the law from taking effect.
Steeh's ruling Friday made the injunction permanent.
"Video games contain creative, expressive free speech, inseparable from their interactive functional elements, and are therefore protected by the First Amendment," Steeh said in his ruling.
Although courts have recognized that certain speech may be restricted when directed toward minors, the state failed to support its claim with substantial evidence that the games are likely to produce violent behavior, Steeh said.
The judge also agreed with the plaintiffs' argument that the law was too vague.
The lawsuit named Granholm, state Attorney General Mike Cox and Wayne County Prosecutor Kym Worthy as defendants.
A spokeswoman for Granholm said the governor was disappointed by the ruling.
"We ... will be reviewing the judge's order and discussing legal options, including an appeal at the attorney general's office," Heidi Watson told the Detroit Free Press for a Tuesday story. "But we will continue our efforts to protect kids from violent video games by working with retailers."
Granholm recently sent letters to retailers urging them to stop selling the game "25 to Life," in which players can gun down police officers. The National Law Enforcement Officers Memorial Fund is leading a nationwide boycott of the game.
Michigan's law would have imposed civil and criminal penalties for anyone who disseminates "ultra-violent" video games to those younger than 17. It said a game is ultra-violent if it repetitively depicts violence such as rape, dismemberment, mutilation or torture.
Similar laws have been struck down or put on hold in several states, including California, Illinois and Washington.
The plaintiffs in the case said they planned to return to court to win reimbursement of their legal fees, which could exceed $100,000.
"Judge Steeh's ruling represents a sweeping rejection of the state's claims regarding the harmful effects of violent video games," Douglas Lowenstein, president of the Entertainment Software Association, said in a statement.