Argentina's government slammed a U.S. federal judge's decision to block a scheduled debt repayment to holders of restructured bonds, calling the move an "abuse of authority."

In a brief statement, the Economy Ministry said U.S. District Court Judge Thomas Griesa is "trying to impede bondholders from collecting on what is legitimately theirs."

Argentina reacted after Griesa said at a hearing Friday in his Manhattan court that Argentina's attempt this week to make a scheduled June 30 payment to creditors who accepted debt restructurings in 2005 and 2010 was "illegal and will not be made."

"Anybody who attempts to make it will be in contempt of court," he added, referring to U.S. banks that process such payments.

He prohibited that payment unless Argentina simultaneously pays a group of holdout creditors hedge funds that refused to accept the debt swaps and sued Argentina for full payment on their defaulted bonds

Griesa, who ruled in 2012 in favor of those hedge funds led by New York-based Elliott Management Corp.'s NML Capital Ltd unit, did not impose a penalty on Argentina for this week's payment and merely said during Friday's hearing that the two sides should continue negotiating a settlement.

The Argentine government, for its part, said the nearly $1 billion it deposited Thursday to pay the exchange bondholders, including a $539 million payment in Bank of New York Mellon's accounts at the South American country's central bank, confirms its "willingness to negotiate in good faith" while Griesa's decision is aimed at "pushing it into default."

With this "unusual and unprecedented decision," the judge has incurred in "an abuse of authority and exceeded his jurisdiction because the restructured bonds are not the object of the litigation," the Economy Ministry said.

The judge, it added, "is deciding on instruments whose validity was never disputed in court nor considered by the U.S. Securities and Exchange Commission."

Besides, "these are funds that no longer belong to Argentina but rather to third parties."

Griesa's decision is "unprecedented because a judge is trying to impede a debtor from meeting its obligations and creditors from collecting," the ministry added.

Argentina will enter into technical default if U.S. banks, in compliance with Griesa's order, do not process its scheduled June 30 payment to the vast majority of investors who accepted steep haircuts in 2005 and 2010 debt restructurings.

If it does not meet that deadline, the country will have an additional 30-day grace period before it would enter into a full-blown default.

In his November 2012 ruling, Griesa ordered Buenos Aires to repay more than $1.3 billion in defaulted debt to the litigating hedge funds. Including interest, the full amount owed to those bondholders is roughly $1.5 billion.

This month, the U.S. Supreme Court refused to hear the Argentine government's challenge of that decision and also issued a separate ruling that enables the holdout bondholders to ask U.S. courts to compel Argentina to reveal the locations of assets.

Denounced by Argentina as "vulture funds," NML and other entities acquired risky Argentine bonds at high interest rates when Buenos Aires defaulted on roughly $100 billion in debt in December 2001 - the largest sovereign default in world history - amid a financial meltdown and economic depression.

Implementation of Griesa's order also would lead other holdout bondholders that were not part of the litigation to demand full repayment on the defaulted debt, according to Argentine President Cristina Fernandez's administration.

Argentina says those potential claims would bring the total owed to the holdouts to some $15 billion, equivalent to half of Argentina's foreign-exchange reserves, and push the country into default.

Fernandez said after the U.S. Supreme Court's decision that Argentina is willing to meet its obligations to holdout bondholders, but she called for "fair and reasonable" conditions in debt negotiations. EFE