In a decision late on Monday, US District Judge Yvonne Gonzalez Rogers in Oakland, California, denied Meta's motion to dismiss claims based on deception, unfair practices and violations of the federal Children's Online Privacy Protection Act.
The judge also said Meta did not comply with that law's notice and parental consent requirements, and granted summary judgment to the states on that issue.
"We strongly disagree with these allegations and are confident the evidence will show our longstanding commitment to supporting young people," Meta said in a statement.
In a separate statement, California Attorney-General Rob Bonta called the decision a "critical win" in holding Meta accountable for fuelling a mental health crisis among American children.
Gonzalez Rogers also oversees related multi-district litigation by more than 2600 individuals, school districts and local governments over whether social media platforms such as Facebook, Instagram, Google and YouTube, Snapchat and TikTok addict children.
The states said research has shown that children's use of Facebook and Instagram could lead to depression, anxiety, insomnia, interference with education and daily life, and self-harm including suicide.
Meta countered that the attorneys-general had no evidence it misled consumers about its platforms' alleged addictiveness, including in congressional testimony by Chief Executive Mark Zuckerberg.
The Menlo Park, California-based company said this was because "social media addiction" is not an established psychiatric condition, and therefore statements that its platforms are not addictive could not be false.
Meta also said it didn't violate the children's online privacy law because it directed Facebook and Instagram to a general audience, not just children under age 13.
In a 38-page decision, Gonzalez Rogers found material factual disputes over whether Meta's social media platforms are addictive, whether Meta falsely denied it designed them that way, and whether it "partially" directed the platforms at children.
"The AGs present a reasonable interpretation of [Meta's] statements that Facebook and Instagram are not designed in ways that cause teens to compulsively use the platforms to their detriment," the judge wrote.
"To the extent plaintiffs' evidence shows that the platforms are in fact designed to do just that, a jury could reasonably find the statements were untrue to a reasonable person," she added.
