GULFPORT, Mississippi (CNN) — A federal judge Friday rejected a proposed settlement agreement involving nearly 35,000 homeowners affected by Hurricane Katrina.

U.S. District Judge L. T. Senter Jr. said the bargain between State Farm Fire & Casualty Co. and the Mississippi attorney general did not establish “a procedure that is fair, just, balanced or reasonable.”

But Senter left the door open for a new settlement agreement, rejecting the proposal “without prejudice.”

Mississippi Attorney General Jim Hood said Tuesday, when the proposed class-action settlement was announced, that it could mean up to $500 million in payments to property owners in coastal Mississippi who were dissatisfied with their insurance payouts after Katrina.

The settlement, Hood said, resolved the civil lawsuit he filed against State Farm on behalf of the company’s Mississippi clients and ended a criminal investigation of State Farm’s claim-handling practices.

But, Senter wrote in his opinion, “In the absence of substantially more information than I now have before me, I am unable to say, even preliminarily, that the proposed settlement establishes a procedure that is fair, just, balanced or reasonable.”

In response to Senter’s ruling, State Farm issued a statement saying, “We look forward to addressing Judge Senter’s concerns.” It added that it believed Senter might be persuaded to change his mind.

The Scruggs Katrina Group, which represents hundreds of State Farm policyholders and is participating in the settlement, pointed out in a statement on its Web site that while Senter refused to grant preliminary approval, “he made clear that the plaintiff’s lawyers are ‘in a position to address the concerns expressed in (his) opinion.’”

Hood issued a statement saying that while his office did not negotiate the terms of the proposal, he did have “reservations about some of the terms.”

“Nevertheless, I knew that Judge Senter would make sure that the class was a fair procedure for all,” he said. “I am confident that Judge Senter will make the plaintiffs and State Farm fix the problems he has raised in his order.”

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