The 89-year-old former general, who ruled the Central American country from 1982 to 1983, will go back to court on January 11 next year, accused of ordering the army to massacre more than 1,700 Ixil Maya indigenous people.
He was sentenced to 80 years in prison at an initial trial in 2013 - the first former head of state in the world to be tried for genocide in a domestic court.
After defence lawyers argued that Rios Montt was no longer mentally fit to stand trial, the court sent him to a psychiatric facility for testing earlier this month.
"The psychiatric experts all agreed the accused suffers mental illness," Judge Jaime Gonzalez said Friday.
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He concluded that "the incapacity of the accused to appear in public court has been demonstrated," and ruled the trial must be held behind closed doors, with no journalists present.
Under the ruling, Rios Montt, who suffers from a series of health problems, will not be in court, either. He will be represented by two attorneys.
Rios Montt and his military intelligence chief, Jose Rodriguez, are charged with orchestrating a scorched-earth campaign in Ixil Maya areas as the government sought to stamp out rural support for leftist guerrilla groups at the height of Guatemala's 1960 to 1996 civil war.
Rodriguez will be tried separately in open court, the judge ruled.
Defence lawyers vowed to keep fighting Rios Montt's trial on grounds of failing health.
Victims' relatives meanwhile cheered the decision.
"He waged a genocide against our people. Many people died. They burned our houses and our animals. It can't go unpunished," said Maria Cedillo, a 49-year-old woman from the town of Santa Maria Nebaj who was wearing the colorful clothing traditional among the Ixil Maya. "I want him to pay for what he did." Maria added.