The judge, Colonel James Pohl, told England he was obliged to throw out her plea after Charles Graner, the alleged abuse ringleader, testified that he had ordered England to hold a leash that was tied around the neck of a naked Iraqi prisoner.
That was one of many statements made during the court martial which contradicted a sworn statement England made.
"I know this is hard on you, but this trial is going to stop today," Pohl said on Wednesday.
"There is evidence being presented that you are not guilty," Pohl told England, 22, after sending Graner and the jury out of the room.
Graner, England's former lover, said one of the central acts of the case - in which England appeared holding a naked prisoner on a leash - was a legitimate prison procedure.
"If you don't believe you are guilty, if you honestly believe you were doing what Graner told you to do, then you can't plead guilty," the judge said.
England pleaded guilty on Monday to seven counts of abuse in return for a shorter sentence and the dropping of two charges.
Her smiling face on pictures of naked and humiliated Iraqis, taken at the prison outside Baghdad in late 2003, is a lasting image of the scandal.
The Washington Post ran pictures
of England and Iraqi prisoners
In presenting testimony before the six-member military jury, England's lawyers were trying to show mitigating circumstances.
They were skating a fine line between minimising England's role and having the judge reject the guilty plea.
In a televised interview last year, England said she was just following orders, and took a similar line when the judge first asked her about her guilty plea on Monday.
"I assumed it was OK because he (Graner) was an MP (military policeman). He had the background as a corrections officer and with him being older than me I thought he knew what he was doing."
Graner outranked England in Iraq, but his rank was reduced to private as part of his sentence after he was earlier found guilty of abuse.
Graner, addressing the leash incident in court for the first time, said the prisoner involved had repeatedly threatened and assaulted Americans.
"I had wrapped what I call the tether around his shoulder and at that point it slid round his neck. I asked [England] to hold the tether and I took three quick pictures," he said.
"There is evidence being presented that you are not guilty. If you don't believe you are guilty, if you honestly believe you were doing what Graner told you to do, then you can't plead guilty"
Judge Colonel James Pohl
Referring to his time as a prison officer in Pennsylvania, Graner said: "I tried to bring what we would have done at Pennsylvania."
Explaining the photographs, he said: "Since we had a planned use of force, I documented it."
US military damaged
As part of her plea deal, England accepted a sentence, still undisclosed, substantially below the 11-year maximum allowed by the charges. The military panel is able to reduce that sentence but may not increase it.
Graner's testimony forced the
judge to declare a mistrial
England's mother attended the hearing and brought England's seven-month-old baby by Graner to the courthouse.
The defence lawyers seeking a lower sentence have two main arguments - that England had suffered from learning disabilities while growing up, and that she was manipulated by Graner, who has been sentenced to 10 years for his part in the abuse.
Publication of the photographs in early 2004 hurt the credibility of the US military at a time when the United States was being criticised around the world for the Iraq invasion.
To date, high-ranking officials have not been charged in the abuse scandal even though details of harsh practices in detention centres across Iraq, Afghanistan and Guantanamo Bay, Cuba, have emerged.