The ban was set to go into effect within hours when U.S. District Judge Derrick Watson said in his ruling that Trump's latest executive order "suffers from precisely the same maladies as its predecessor".
Trump's order "plainly discriminates based on nationality in the manner that the Ninth Circuit has found antithetical to both Section 1152(a) and the founding principles of this Nation," Watson wrote, referring to a section of the Immigration and Nationality Act.
Watson granted Hawaii a Temporary Restraining Order, or TRO, which prevents the government from implementing the president's direction.
The White House called the ruling "dangerously flawed" and said it "undercuts the President’s efforts to keep the American people safe".
"The Department of Justice will vigorously defend the President’s lawful action," the White House said in a statement.
The Trump administration laid out late last month new restrictions to replace Trump's previous travel ban, which was set to expire, adding two non-Muslim-majority countries to the list of designated nations while dropping Sudan.
The countries that face travel restrictions under Trump's new order are Chad, Iran, Libya, North Korea, Somalia, Venezuela and Yemen.
They were designated because they have either not met higher screening and information sharing requirements or present what officials call sufficient risk factors.
"The entry restrictions in the proclamation apply to countries based on their inability or unwillingness to share critical information necessary to safely vet applications, as well as a threat assessment related to terrorism, instability, and other grave national security concerns," the White House said after Watson issued his ruling.
Trump's travel restrictions face additional legal challenges in multiple states.
The American Civil Liberties Union, which is part of a separate legal challenge in Maryland, lauded the Hawaii court's ruling, saying on Twitter: "The Muslim Ban has been blocked. Again. #NoMuslimBanEver".