U.S. District Judge Derrick Watson issued the ruling after hearing arguments.
Hawaii State Attorney General Douglas Chin argued that the ban's message is like a "neon sign flashing 'Muslim ban, Muslim ban'" that the government did not turn off.
The state argued that extending the temporary order ensures the constitutional rights of American Muslims are vindicated after "repeated stops and starts of the last two months."
The Department of Justice's Readler said a freeze on the U.S. refugee program had no effect on Hawaii.
Watson questioned that argument, noting that the government said 20 refugees had been resettled in Hawaii since 2010.
"Is this a mathematical exercise that 20 isn’t enough? ... What do I make of that?" Watson asked the government attorney.
Readler responded that 20 is simply a small number of refugees.
"In whose judgment?" Watson shot back.
State Attorney General Chin also took the opportunity to slam the president, saying in his arguments, "We cannot fault the president for being politically incorrect, but we do fault him for being constitutionally incorrect."
The Associated Press contributed to this report.