The lawsuit was filed by 18 Democratic attorneys general and attempts to force the administration to reunite the approximately 2,000 separated children with their families.
California Attorney General Xavier Becerra said in a statement the policy to detain children away from parents was a “heartless political manoeuvre".
Though Mr Trump signed an executive order last week declaring that families would no longer be separated upon illegal entry into the US, the lawsuit stated the executive order is "so vague and equivocal that it is unclear when or if any changes will actually be made".
The order did not reverse or end the underlying "zero tolerance" policy announced by Jeff Sessions, the US attorney general.
Families can also now be indefinitely detained and the policy still makes seeking asylum in the US a crime. US immigration law states people wanting the protected status must enter the country before applying for it.
The order stated that "family unity" will be maintained "where appropriate and consistent with law and available resources".
“Child internment camps in America...the Trump Administration has hit a new low. President Trump’s indifference towards the human rights of the children and parents who have been ripped away from one another is chilling,” Mr Becerra said.
The lawsuit claims the implementation of the policy was "motivated by animus and a desire to harm” and said it is unconstitutional.
Delaware, Iowa, Illinois, Maryland, Minnesota, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia joined the complaint which was filed in the US District Court, Western District of Washington, in Seattle.
Parents are still being detained, sometimes thousands of miles from their children who were moved as far away as New York and Michigan, and neither the Department of Health Human Services' Office of Refugee Resettlement - in charge of the child detention centres - nor the Department of Homeland Security have announced a concrete reunification plan.
The lawsuit alleged that parents are being denied due process and their right to seek asylum after fleeing rampant gang violence in their home countries.
Another lawsuit was brought by an immigrant rights group in Seattle as well after approximately 70 families from South Asia were separated upon entering the country to seek asylum.
For several days leading up to the executive order Mr Trump and his administration - in various stages - denied that families were being separated, called it "biblical" to enforce to US immigration law, and falsely blamed Democrats for the continuation of separating children, sometimes as young as four months old, from families.
Mr Trump and his surrogates also claimed the policy was aimed at taking children away from potential human traffickers.
However, there is no US immigration law or court precedent that compelled the federal government to separate families. It was only due to Mr Sessions' policy announced in May 2018 that parents and guardians entered the US criminal justice system, therefore making it impossible for their children to accompany them.
Immigrants' rights activists, thousands of protesters, Democrats, all the living former first ladies and even some Republicans were harsh in their criticism of Mr Trump and the policy.
Former First Lady Laura Bush said it was "cruel" and Senator Lindsey Graham called it "a mess".
Mr Trump's response was to wrongfully claim he did not have unilateral power to end the policy.
He said the day of the order signing: “The dilemma is that if you’re weak, if you’re weak, which some people would like you to be, if you’re really, really pathetically weak, the country’s going to be overrun with millions of people.
"And if you’re strong, then you don’t have any heart. That’s a tough dilemma. Perhaps I would rather be strong, but that’s a tough dilemma."
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