Senior U.S. District Judge Roger Vinson said the new law violates people's rights by forcing them to buy health insurance by 2014 or face penalties. He went a step further than a previous ruling against the law, declaring the entire thing unconstitutional if the insurance requirement does not hold up.
"I must conclude that the individual mandate and the remaining provisions are all inextricably bound together in purpose and must stand or fall as a single unit," Vinson ruled.
Despite Vinson's ruling, he allowed the government to continue implementing the law pending appeal.
Attorneys for the administration had argued that the states did not have standing to challenge the law and that the case should be dismissed.
Vinson reasoned that the health care overhaul was unconstitutional because it was trying to regulate "inactivity."
"It would be a radical departure from existing case law, to hold that Congress can regulate inactivity under the Commerce Clause," Vinson ruled.
Justice Department spokeswoman Tracy Schmaler said Monday the department strongly disagrees with Vinson's ruling and intends to appeal.
"There is clear and well-established legal precedent that Congress acted within its constitutional authority in passing this law and we are confident that we will ultimately prevail on appeal," she said in a statement.
The final step will almost certainly be the U.S. Supreme Court. Two other federal judges have already upheld the law and a federal judge in Virginia ruled the insurance mandate unconstitutional but stopped short of voiding the entire thing.
ABC News and the Associated Press contributed to this story.