Judge Travis Laster of Delaware's Court of Chancery denied Anthem's request for a preliminary injunction but stayed implementation of his ruling until noon on Monday to give the insurer time to decide if it will pursue an appeal to the Delaware Supreme Court.
"I recognize that this ruling will permit Cigna to terminate the merger and effectively end Anthem's path to closing," he said in the hearing.
The U.S. Justice Department and 11 states sued last year to stop the $54 billion merger, which would have created the largest U.S. health insurer, and won in both district court and an appeals court.
Anthem had asked the U.S. Supreme Court to hear the federal antitrust case and requested the preliminary injunction in order to hold the proposed deal together long enough for the high court to decide if it would take it.
Neither company immediately responded to a request for comment.
Barring a successful appeal at the Delaware Supreme Court, the two sides will likely continue to fight over a $1.85 billion break-up fee and damages for failing to close the deal.
Laster said that Anthem could seek "potentially massive damages" for Cigna failing to meet it obligation to help close the deal. At a hearing on Monday, Anthem presented evidence it said showed Cigna executives were plotting to get out of the deal by refusing to help with a plan to win antitrust approval.
Cigna has accused Anthem of breaching the merger agreement by pursuing a failed strategy to get regulatory approval.