The judge said the ban had interpreted a Supreme Court ruling too narrowly.
That decision, made last month, partly reinstated the ban on refugees and travellers from six Muslim-majority countries.
It said only those with "bona fide" family ties would be let into the US.
But the Trump administration decided that did not include grandparents, grandchildren, brothers-in-law, sisters-in-law, uncles, aunts, nephews, nieces and cousins.
Judge Watson, however, disagreed - and ordered that those restrictions should not be enforced.
The judge condemned the government's definition of a close relative as "unduly restrictive".
"Common sense, for instance, dictates that close family members be defined to include grandparents. Indeed, grandparents are the epitome of close family members", he wrote.
Mr Trump's ban on travel to the US for people from Iran, Libya, Somalia, Sudan, Syria and Yemen has been controversial since its announcement.
The Supreme Court is still considering the current version of the law, and allowed a temporary ban to come into effect in June pending their full judgement.
Mr Trump says the restrictions are needed to keep America safe and prevent terror attacks.
However, critics including states and refugee advocacy groups have said the ban discriminates against Muslims.
An initial version of the ban, published in January, sparked mass protests at airports and a series of legal challenges that prevented its implementation.
Mr Trump drafted a new version in March, dropping Iraq from the list of countries, clarifying the position of "green card" holders, removing priority for "religious minorities" in mostly-Muslim countries, and softening a tough stance on Syrian refugees.
But courts struck down the new version within days, with a Virginia court claiming it was "rooted in religious animus" toward Muslims.
That prompted the Trump administration to go to the Supreme Court for a ruling, where conservatives hold a majority of five to four.
The nation's highest court allowed the ban to go ahead temporarily, until it makes a full decision in October.
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