"Imagine that we would decide to implement what's being asked of us," said Philippe Guillanton, chief executive for Yahoo's French site.
The judge's call for the tests came during a hearing on Monday into whether Yahoo had complied with June's court order.
Witnesses called by the two sides disagreed on the effectiveness of internet screening systems and the judge adjourned the case until next month while the tests are carried out.
The case was brought after a complaint from a Paris-based group, the International League Against Racism and anti-Semitism - known by its French acronym Licra.
French law
French law prohibits the exhibition or sale of objects with racist overtones, and Yahoo could face daily fines of more than $150,000 if the high court finds that the US-based company has failed to comply with last month's ruling.
But surfers can browse the same pages, which routinely offer hundreds of real or imitation Nazi artefacts every day, on the global site yahoo.com.
If the judge rules against Yahoo, it will make material in a foreign language and not specifically aimed at the French population actionable under French law just because it is possible to access that material in France.
Screening technology
Attorneys for Yahoo argued that although screening software exists, no existing technology could effectively keep all French users from seeing racist sites.
They also said that blocking certain keywords, such as 'Nazi', would hinder free speech and hurt people doing legitimate historical research.
"Imagine that we would decide to implement what's being asked of us," said Philippe Guillanton, chief executive for Yahoo's French site.
"Tomorrow, a judge from any country could come to a Web publisher from any other country and ask them to pull down such and such because it's unacceptable in that country.
"The web doesn't work that way," Mr Guillanton said, "The web is based around the concept of user responsibility."
'Screening possible'
Lawyers acting for Licra accused Yahoo of acting in bad faith and said it should pay a daily fine of $186,900 during the assessment period.
"We're demanding the hard disk be cleaned in the name of morality and French law. If access cannot be filtered, it should be suppressed," lawyer Stephane Lilti said.
Information technology company Infosplit was called by the plaintiffs.
Infosplit argued that their technology could keep 95% of surfers from a particular country from a web site, and has set up a demonstration at its site to illustrate its claim.