He was also "appalled" that Argentina would not consult with its representing law firm, Cleary Gottlieb, before making a proposal to shift the debt domicile to Argentina.

Judge in bond case says Argentina cannot change debt's domicile

Reuters with CNBC.com

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Marcos Brindicci | Reuters

A man walks past graffiti that reads, "Get out vultures" in Buenos Aires, August 14, 2014.

U.S. District Judge Thomas Griesa said Argentina cannot change the debt's domicile after meeting with the country's counsel and debt holdouts on Thursday.

He added that the proposal is a violation of current U.S. court orders and cannot be carried out, stating that it is the farthest he would go for the moment on the matter. The judge is not issuing a contempt finding in the debt case.

Any entity assisting Argentina in avoiding a basic order of this court would be a clear violation, Griesa said.

He was also "appalled" that Argentina would not consult with its representing law firm, Cleary Gottlieb, before making a proposal to shift the debt domicile to Argentina.

Lawyers for the debt holdouts asked Griesa to grant a contempt order immediately and leave discussion of sanctions for later. However, Argentina's lawyer, Carmine Boccuzzi, said a contempt order would not facilitate settlement talks and would instead put "gasoline on the fire."

Earlier, holdout lawyer Edward Friedman for Aurelius had said no settlement was possible until it became "crystal clear" to Argentina that evasion of the judge's order will not be countenanced.

—By Reuters. CNBC.com contributed to this report.

http://www.cnbc.com/id/101937280