A U.S. bankruptcy judge on Thursday rejected a deal allowing Detroit to end interest-rate swap agreements with two investment banks, a move that puts pressure on banks for more concessions while throwing a wrench into the city's plans to exit bankruptcy by September.

Ending costly swaps agreements with UBS AG and Bank of America Corp's Merrill Lynch Capital Services has been a key component of Detroit emergency manager Kevyn Orr's plan to adjust the city's finances through the bankruptcy process.

But Detroit's proposal to pay $165 million - a 43 percent discount from its original obligation - was still "too high a price to pay," federal bankruptcy judge Steve Rhodes ruled.

Rhodes, who is overseeing the city's historic bankruptcy, said Detroit likely could succeed with legal challenges to the validity of the original swaps agreements.

Since Detroit would make such a challenge in Rhodes' court, the ruling is a strong signal that banks could leave with nothing if they do not give up more in negotiations. UBS and Bank of America declined to comment as did bond insurer Syncora Guarantee, which had opposed the deal Rhodes rejected.