WASHINGTON - A federal judge ruled yesterday that nine states may pursue their challenge to Microsoft Corp.'s proposed antitrust settlement with the Bush administration.

U.S. District Judge Colleen Kollar-Kotelly rejected Microsoft's motion to throw out the states' bid for antitrust penalties tougher than those that the proposed settlement of the 4-year-old case would impose.

Last year, a federal appeals court upheld findings that Microsoft acted illegally to protect its monopoly on the Windows operating system. Kollar-Kotelly said Microsoft's motion asked her to ignore those "explicit findings of liability."

"The decision confirms the rightful role of state attorneys general to prosecute antitrust violations," Iowa Attorney General Tom Miller said in a statement. "Now we can see the finish line in this case."

Microsoft had asked for a dismissal, saying that the states could not show specific harm to their residents and that their pursuit would clash with a federal settlement reached in November.

"Microsoft quotes selectively from a number of cases with the effect of mischaracterizing their holdings," Kollar-Kotelly wrote in response to the settlement argument. "The court finds this tactic unpersuasive."

"The court concludes that Microsoft's motion is without merit and must be denied," Kollar-Kotelly wrote.

Kollar-Kotelly signaled last month after 32 days of hearings that she would reject Microsoft's request. Though the ruling upheld the states' right to oppose the settlement and request stiffer remedies, it didn't address the merits of the states' proposals. The judge added in a footnote that the Bush administration's argument that she owes deference to federal antitrust enforcers' recommended remedy "have not passed unnoticed" and might figure in her final decision.

"While we had hoped for a different outcome on this particular motion, we did raise some important constitutional and policy issues with the court," Microsoft spokesman Jim Desler said. "The court notes that some of these issues may remain relevant in terms of the remedy."

The Justice Department supported the nine states' right to seek a separate remedy, though it urged the judge to reject remedies the states have suggested. The government argued that the judge may properly consider "whether a small group of states are the parties best situated to obtain relief of such a broad reach and implication."

Kollar-Kotelly is scheduled to hear final arguments Wednesday on the states' proposals, which would force Microsoft to make a stripped-down version of Windows from which computer makers could remove programs such as Internet Explorer and Windows Media Player.

The states also want Microsoft to place the code of Internet Explorer in the public domain as the "fruits" of its illegal campaign to stifle competition from Netscape Navigator, a rival browser owned by AOL Time Warner Inc.

The proposed settlement would force Microsoft to let computer makers promote rival software and hide access to Internet Explorer and other Microsoft programs without removing the underlying software code.

The states challenging the settlement negotiated by the Justice Department say it is too riddled with loopholes and ambiguities to prevent Microsoft from continuing to squelch competitive threats to Windows, which runs 95 percent of the world's personal computers.

The states that rejected the government's settlement with Microsoft last fall and are pressing for tougher penalties are Iowa, Utah, Massachusetts, Connecticut, California, Kansas, Florida, Minnesota and West Virginia, along with the District of Columbia.