The decision by Justice Jennifer Schecter of the NY state court in Manhattan in favour of California restaurateur Summer Zervos, a former contestant on NBC's The Apprentice, raises the prospect that Mr Trump might have to answer embarrassing questions in court about his behaviour towards women.
The justice said there is nothing in the Supremacy Clause of the U.S. Constitution that precludes a sitting president from being haled into state court for conduct that is not related to his federal duties. The trial court considering the request, the Supreme Court of the State of New York in New York County, heard arguments on the request in December and denied it Tuesday.
Trump also faces a lawsuit by porn actress Stormy Daniels to end an agreement under which she was paid $US130,000 in what she called hush money to keep quiet about an affair she claimed to have had with Trump beginning in 2006.
Mariann Wang of Cuti Hecker Wang, who represents Zervos, said of the judge's decision that "rule of law and sound reason have prevailed today".
Zervos met Trump when she became a contestant on "The Apprentice" in 2005.
The suit, filed in January 2017, alleged that Trump harmed her reputation by essentially calling her a liar.
Schecter cited litigation against President Bill Clinton in the 1990s in ruling in favor of Zervos on Tuesday.More news: March Madness: UNC Greensboro's upset bid ends on physics-defying miss
Marc Kasowitz of Kasowitz Benson Torres, who is representing Trump in the case, said in December at oral arguments for the motion to dismiss that Trump's statements on the issue amounted to overheated campaign rhetoric-and thus can not be construed as defamatory-and that none of the statements explicitly named Zervos. In its ruling, Manhattan Supreme Court Justice Jennifer Schecter said, "No one is above the law".
The ruling to push forward with Zervos' case "is an important victory", Nita Chaudhary, co-founder of UltraViolet, an organization fighting sexism, said in a statement.
Trump has repeatedly said that all of the women who accused him of touching them inappropriately were lying - a sentiment his White House reiterated as questions resurfaced about the allegations.
Maria Glover, a law professor at Georgetown University, said that the decision will nearly certainly go to appeal.
Tuesday's decision is likely to be appealed and will probably reach the state's highest court, and perhaps the U.S. Supreme Court, said Mezey.
In her ruling, Schecter also dismissed a request that the case be stayed for the duration of Trump's time in office, saying that such "a lengthy and categorical stay is not justified" just because a president can be called away to attend to a crisis.