The decree relates to a lawsuit Daniels filed on a hush money agreement she agreed to before the 2016 election.
The purpose of the arrangement was to stop Daniels from publicly discussing an alleged liaison she had with Trump in 2006.
Daniels asserts that because Trump did not sign the contract, it was void.
The judge found in Daniels' favor, finding that the deal had been executed without Trump's knowledge or consent by Michael Cohen, Trump's attorney.
Trump was also sentenced to pay an additional $1 million in damages after the judge determined that his tweet denial of the relationship amounted to slander.
Trump's attorneys have stated that they intend to appeal the ruling.
The decision marks Trump's most recent legal setback as he deals with numerous lawsuits and investigations.
Daniels has emerged as a key character in the #MeToo movement, which aims to raise awareness of and prevent sexual assault and harassment.
Trump's character and suitability for office have come under significant public criticism as a result of the hush money agreement and the alleged affair.