Mr Trump in July said he would ban transgender people from the military in a move that would reverse Democratic former president Barack Obama's policy and halt years of efforts to eliminate barriers to military service based on sexual orientation or gender identity.
People protest against US President Donald Trump's ban on transgender service members outside the US Army career center in Times Square, New York City, on August 25, 2017.
In a 76-page memo accompanying the ruling, Judge Colleen Kollar-Kotelly wrote that the plaintiffs are likely to succeed in their case arguing the transgender ban violates their Fifth Amendment right to due process.
A study by the Williams Institute at UCLA School of Law found there could be as many as 15,000 transgender people who've served in the military with more than 8,000 on active duty.
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He gave the Pentagon until March 23, 2018 to craft a new policy on transgender service members.
"The federal courts are recognizing what everyone already knows to be true: President Trump's impulsive decision to ban on transgender people from serving in the military service was blatantly unconstitutional", said Joshua Block, senior staff attorney with the ACLU's LGBT & HIV Project.
She did not rule on another section of the directive that banned using military resources to pay for sex reassignment surgeries.
Kollar-Kotelly enjoined enforcement of a directive by President Trump that would ban transgender recruits and would oust transgender people already in the military. He followed with an August memo directing the Pentagon to extend indefinitely a ban on transgender individuals joining the military, and gave Defense Secretary Jim Mattis six months to come up with a policy on "how to address" those who are now serving. Transgender individuals to serve in any capacity in the U.S. Military. The administration has sought to prohibit such payments; Kollar-Kotelly said she didn't have jurisdiction to rule on the issue because none of the plaintiffs in the case established a likelihood of being impacted by that prohibition. Gen. Joseph Dunford, the chairman of the Joint Chiefs of Staff, issued a statement after those tweets, announcing that no immediate personnel decisions would be made until after a formal presidential memorandum was issued.
"This court saw straight through the smokescreen the government tried to create to hide the bias and prejudice behind Trump's change in military policy. The Department of Justice has it, they're reviewing it and I'd refer you to them for any specific questions".