Is it permissible to continue associating with a veiled friend whose hijab is not in accordance with Islamic law, given that she is kind and of good character?

There is no harm in continuing the companionship of the girl and walking with her. This should be utilized to advise her gently and kindly, and be a good role model for her, as gentleness and a good example are influential. If she does not respond, then let your companion be a believing, pious person. There is no harm in maintaining some relationship to continue advising her if her rectification is hoped for.