Judge Joseph Montano said prosecutors could pursue new charges against Busfield.
The US actor has strongly denied allegations of improperly touching two young boys, twin brothers, on the Albuquerque set of drama The Cleaning Lady.
A spokesperson for the Second Judicial District Attorney Office of New Mexico said the office was evaluating its options.
The twins reported the alleged contact had occurred over a two-year period, when they were aged seven and eight, during breaks in production, prosecutors said in a criminal complaint filed in January.
Busfield, a director and producer of The Cleaning Lady, was charged in February in a four-count grand jury indictment that accused the actor of groping one of the boys.
He steadfastly professed his innocence, calling the allegations against him "lies," and his lawyers asked for the charges against him to be dismissed.
In Friday's ruling, Montano said the prosecution did not properly instruct members of the grand jury on procedures for requesting testimony from additional witnesses.
In part, the prosecutor incorrectly informed the grand jurors that at least eight of them would have to agree to wanting to hear from a witness for that person to be called.
"The prosecuting attorney failed to act in a fair and impartial manner," Montano wrote, adding the lawyer's actions "had the practical effect of unilaterally withholding witnesses requested by the grand jurors."
Busfield, 69, is best known for his prime-time television roles as a White House reporter on the political drama The West Wing and as an advertising agency executive in Thirtysomething. He also appeared in the baseball film Field of Dreams, starring Kevin Costner.
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