The order blocked the Department of Defence funds being spent on the barrier because it had not been specifically authorised by congress.
It followed a legal challenge to the outlay by California and 19 other states.
But the ruling did not cover another $5.1bn which is still free to be used by Mr Trump after he declared drugs and crimes entering the US via the Mexican border a national emergency.
In his ruling halting the $1bn, US district judge Haywood Gilliam Jr wrote: “The position that when congress declines the executive's request to appropriate funds, the executive nonetheless may simply find a way to spend those funds without congress does not square with the fundamental separation of powers principles dating back to the earliest days of our republic."
Separately, Judge Gilliam denied a preliminary injunction against the border wall sought by a coalition of 16 states – but did say they could move forward with their case.
Mr Trump has said the wall is needed to address a crisis of on the border, and promised to stem illegal immigration arriving in the country there.
But the new ruling is just the latest in a series of frustrations as he attempts to have his election promise of the barrier turned into reality.
In February, after a protracted political battle and a long government shutdown, congress approved just $1.38bn for construction of "primary pedestrian fencing" along the border in south east Texas – well short of the demanded 2,000 mile wall.
To obtain the additional money, Mr Trump declared a national emergency and his administration said it planned to divert $601m from a Treasury Department forfeiture fund, $2.5bn earmarked for Department of Defence counter-narcotics programmes and $3.6bn from military construction projects.
The House of Representatives, more than a dozen states and two advocacy groups asked Judge Gilliam in California to block the transfer of funds to prevent the wall construction.
They argued the administration should not use funds congress has specifically denied or construct a barrier that was not authorised, nor could the administration work outside the geographic area identified by congress.
"This is a win for our system of checks and balances, the rule of law, and border communities," the American Civil Liberties Union tweeted after the ruling was made.