Opponents wanted the work stopped until a Nov. 13 hearing on their lawsuit aimed at ending the project.
They filed the lawsuit alleging the Los Angeles Department of Building and Safety failed to notify them of its decision to exempt the development from an environmental review.
However, the judge ruled on Friday that there was no environmental risk in allowing internal work to proceed.
The proposed 33,000-square-foot Wal-Mart is planned to be built on the corner of Cesar E. Chavez and Grand avenues. Critics believe building the megastore will have a negative impact on traffic and on the general character of the area, and the retailer will disrupt smaller businesses in the community.
On the other hand, some believe the project will bring much-needed jobs to the area.