A United States federal judge has ordered New York's Metropolitan Transportation Authority (MTA) to display on its buses a controversial ad that refers to Muslims killing Jews, rejecting the argument that the ad could incite "terrorism" or imminent violence.

In his ruling, published on Tuesday, US District Judge John Koeltl in Manhattan said the ad from the American Freedom Defense Initiative (AFDI), which had previously run in Chicago and San Francisco, was protected speech under the First Amendment of the US Constitution.

Similar AFDI campaigns have also run elsewhere, including in Washington DC.

The ad portrays a menacing man wearing a scarf around his head and face, includes a quotation "Killing Jews is Worship that draws us close to Allah" attributed to "Hamas MTV", and then states, "That's His Jihad. What's yours?"

Koeltl said he was "sensitive" to security concerns, but noted that the MTA and Chairman Thomas Prendergast "underestimate the tolerant quality of New Yorkers and overestimate the potential impact of these fleeting advertisements. It strains credulity to believe that New Yorkers would be incited to violence by ads that did not incite residents of Chicago and San Francisco".

MTA buses and subways are often forums for policy debates. The agency has accepted other ads from the AFDI, which is characterised as an anti-Muslim group by the Southern Poverty Law Center.

MTA spokesman Adam Lisberg said the agency is disappointed in the ruling and is reviewing its options.

The judge suspended the effect of his order for a month to leave time for appeals.