He was arrested again in February on his return from a Houston medical clinic and is currently hospitalised with nervous system problems.
The bishop was killed in 1998, two days after he released a landmark report, which blamed Guatemala's army for the majority of the 200,000 killings during the country's 36-year civil war.
"We found basis to the prosecutor's theory that the priest, Mario Orantes, participated in the murder of Bishop Gerardi, along with members of the state security forces," Judge Flor de Maria Garcia said.
Father Orantes was charged with the murder in July 1998, but was released for lack of evidence.
He was arrested again in February on his return from a Houston medical clinic and is currently hospitalised with nervous system problems.
The judge will also decide, in the months to come, whether two military officers arrested in January for the killing must also stand trial. A third officer arrested at the same time has been freed.
Scapegoat
Bishop Gerardi was bludgeoned to death in April 1998 in the garage of the seminary where both he and Father Orantes both lived and worked.
The case has taken several bizarre turns in the past two years.
Prosecutors have linked the killing to Father Orantes' dog, to a ring of church robbers and to homosexual affairs between priests, while human rights' activities have insisted Bishop Gerardi was assassinated by the military.
Father Orantes' lawyer, Jose Toledo, said his client was being used as a scapegoat for the murder.
"What we have here is a public prosecutor, without the resources to conduct a proper investigation, who is settling on the easiest and seemingly most obvious suspect," Mr Toledo said.