Last year, General John Hyten, now the vice chairman of the Joint Chiefs of Staff, was accused of sexually assaulting a female officer under his previous command.
Kathryn Spletstoser, a retired Army colonel, had accused Hyten of engaging in unwanted kissing and touching as well as rubbing up against her.
An official Air Force investigation did not substantiate the accusations against Hyten, who last year was confirmed by the Senate to his current position.
A district court in the Central District of California on Thursday denied Hyten's motion to dismiss the case or to change the venue from California to Nebraska.
A spokeswoman for Hyten said the Department of Justice was reviewing the ruling.
"As is our practice in all on-going litigation, we are not going to comment on the details," Major Trisha Guillebeau said.
Legal experts and advocates said military sexually assault cases usually are not heard in federal courts and the move was rare.
"I personally know of no other case where it's been ruled this way," Don Christensen, a retired chief prosecutor for the Air Force, said.
"It's chipping away at the barrier to being able to successfully sue your perpetrator in the military," Christensen, who leads the advocacy group Protect Our Defenders, added.
Steve Vladeck, a professor at the University of Texas at Austin School of Law, said that while individual district court rulings may not set precedents, it could provide a path for courts to narrow the Feres doctrine, which does not allow service members to recover damages from the government.