U.S. District Judge Stanwood Duval ordered FEMA to extend its overall deadline for hotel room payments from Jan. 7 to Feb. 7.
Duval further said that if FEMA makes a determination on whether to provide rental housing assistance to an evacuee before Feb. 7 it must still provide two weeks' worth of hotel room payments.
FEMA officials first set a hotel room payment cutoff deadline at Dec. 1, but later ordered two extensions, finally settling on the Jan. 7 date.
But Duval said the agency could not guarantee that it would review applications for more permanent housing assistance before Jan. 7.
"FEMA cannot assure the court that it will process all or most of the applications of the persons living in hotels and/or motels by Jan. 7, 2006," Duval wrote. "The court is convinced that many persons in the putative class will be irreparably harmed by FEMA's admitted inability to process the pending applications."
In his ruling Duval also criticized FEMA for a slow response to the disaster and ongoing policy shifts, which he called "eccentric and bizarre vacillations."
Duval further exhorted the agency to work more quickly and efficiently to help those displaced by the disaster.
"It is this court's feeling that the initial paralysis stage has passed and all government agencies -- local, state and federal -- should be operating in full tilt to assist the hundreds of thousands of citizens displaced by no fault of their own," Duval wrote, according to the Washington Post.
Duval's order came in response to a class action lawsuit filed on behalf of 25 displaced hurricane victims.
"This ruling means that tens of thousands of adults and children who faced homelessness this holiday season will instead find that there is room at the inn," said Howard Godnick, an attorney for the evacuees.
In a statement, FEMA officials said they would review the judge's decision, which they are allowed to appeal.
"FEMA has provided rental assistance to more than 500,000 families affected by this catastrophe so far. The needs of the relative few who remain in hotels and motels are a top priority," the statement said. "FEMA continues to reach out to those evacuees who may not yet know of federal aid they are eligible to receive. FEMA's aim is to ensure that all victims of hurricanes Katrina and Rita have housing."
The agency has spent around $350 million for some 41,000 hotel rooms across the country.