Terminally ill California veterans wishing to use the state’s assisted dying law must be evicted or leave the state veterans’ home, a lawsuit challenging a regulation prohibiting the use said.

California is among a handful of states that permit assisted suicide. The California Department of Veterans Affairs (CalVet) argues the regulation banning assisted suicide was necessary to avoid violating the 1997 federal Assisted Suicide Funding Restriction Act, the lawsuit said. Veterans contend the agency’s argument is unsupported by law...