Judge Charles Breyer ordered the National Guard to return to the control of California Governor Gavin Newsom, who sued to restrict its activity.
Breyer's order will take effect at noon on Friday.
"The court is troubled by the implication inherent in defendants' argument that protest against the federal government, a core civil liberty protected by the First Amendment, can justify a finding of rebellion," Breyer ruled late on Thursday.
The Trump administration immediately appealed the judge's order.
Trump summoned military troops to Los Angeles to support a civilian police operation over the objection of Newsom, an extraordinary and rarely used measure.
The ruling came hours after Department of Homeland Security Secretary Kristi Noem pledged to "liberate" Los Angeles at a media conference that was dramatically interrupted when federal agents dragged Democratic US senator Alex Padilla out of the room, forced him to the ground and handcuffed him.
The court battle and news conference scuffle underscored the political polarisation generated by Trump's approach to immigration enforcement and use of presidential power.
Trump summoned first the National Guard, then the Marines, to help federal police forces guard federal buildings from protesters and to protect federal immigration agents as they pick up suspected violators.
Trump has defended his decision, saying if he had not done so the city would be in flames.
The protests so far have been mostly peaceful, punctuated by incidents of violence and restricted to a few city blocks.
Some 700 US Marines will be on the streets of the city by Thursday or Friday, the military has said, to support up to 4,000 National Guard troops.
In his ruling, Breyer wrote that the presence of the troops in the city was itself inflaming tensions with protesters and depriving the state of California with the ability to use the Guard for other purposes, such as fighting fires and drug smuggling.
Breyer noted Trump's deployment threatened other states as well.
Trump is carrying out a campaign promise to deport immigrants, employing forceful tactics consistent with the norm-breaking political style that got him elected twice.
Americans are divided over Trump's decision to activate the military, according to a Reuters/Ipsos poll that showed 48 per cent of respondents agreed with a statement that the president should "deploy the military to bring order to the streets" when protests turn violent, while 41 per cent disagreed.
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