The judge said that the federal regulators’ decision to assign insurer MetLife as "too big to fail" was "arbitrary and capricious.

Commenting on the court’s ruling, a Treasury spokesperson said: "The government will appeal the district court’s decision to rescind FSOC’s designation of MetLife."

Treasury Secretary Jack Lew said he strongly disagreed with the court’s ruling. The government would strongly defend the work of the Financial Stability Oversight Council (FSOC), which designated MetLife as a systemically important financial institution in 2014.

"After a thorough review, FSOC determined that material financial distress at the company could threaten U.S. financial stability — the threshold for heightened supervision under Wall Street Reform. The heads of every U.S. financial regulatory agency concurred in this judgment," Lew added.

"In overturning the conclusions of experienced financial regulators, the court imposed new requirements that Congress never enacted, and contradicted key policy lessons from the financial crisis. In particular, we should bear in mind three key points."

Welcoming the court ruling, MetLife chairman, president and CEO Steven Kandarian said: "Today’s ruling validates MetLife’s decision to seek judicial review of our SIFI designation.

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"From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States. This decision is a win for MetLife’s customers, employees and shareholders."

MetLife has been fighting against the designation since being named as a non-bank SIFI in 2014. The insurer officially filed an action to upend the designation in 2015.