A New York judge ruled that Argentine assets in the United States, unless diplomatic or military, should be deemed commercial property, making it easier for creditors to try to seize or freeze them.

US District Court Judge Thomas Griesa announced the sanction after a three-hour hearing in a Manhattan court.

A group of hedge funds led by NML and Aurelius Capital Management have for years been trying to force Argentina to pay off defaulted bonds, which amount to $1.8 billion.

In September 2013, a US court issued an injunction requiring Argentina to provide information on all assets in the United States to determine which are not protected by diplomatic immunity and could be seized by creditors.

But Griesa ruled Wednesday that Argentina should be punished for failing to provide that information.  

"This court finds that the Republic of Argentina has failed to comply with (a) September 25, 2013 order," Griesa said in a statement.

"It imposes the following sanctions for such failure: any property of the republic in the US except diplomatic and military is deemed to be used of commercial activity."

NML's own investigation into Argentine property in the United States discovered at least $3 million in assets not protected under diplomatic or military clauses.

Carmine Boccuzzi, an attorney representing Argentina, denied there were any Argentine commercial properties in the country.

"There is no asset of commercial matters in the USA. There are all diplomatic and military assets in the US," he said.

"The sanction request is unprecedented."

Argentina has been refusing to pay NML and Aurelius Capital Management, arguing that they relinquished their claim when they refused to join a restructuring of nearly $100 billion in debt the country defaulted on in 2001.

In May, Argentina's economy minister went to the United Nations to accuse hedge funds Argentina may owe of gaining "extortionate power" over countries seeking to restructure sovereign debt.

With the country refusing to pay, last year US courts gave the hedge funds the right to seek out and identify Argentine assets they might be able to seize.

Argentina's President Cristina Kirchner was elected in 2011 for a second term and under the constitution is not permitted to run for a third when elections are held in October this year, which means the country's debt mess likely will have to be sorted out by her successor.