Participants attend a town hall style meeting on health care reform at the South Lakes High School gymnasium in Reston, Virginia, August 25, 2009. Credit: Reuters/Larry Downing

U.S. District Judge Henry Hudson refused to dismiss the state's lawsuit which argues the law's requirement that its residents have health insurance was unconstitutional, allowing the challenge to go forward.

The new law is a major cornerstone of President Barack Obama's domestic agenda and administration officials have vigorously defended it as constitutional and necessary to stem huge increases in costs for health care.

Virginia's lawsuit is one of several try

ing to undo the law which Obama signed earlier this year aimed at overhauling the $2.5 trillion healthcare system.