The same appeals court is expected to hear arguments on the merits of the government's moratorium case in late August.

Temporary ban

The government had imposed on new deepwater drilling projects a six-month ban in the wake of the massive BP oil spill in April.

It argued that the order, which bans drilling below 152.5 metres, need to be reinstated in order to investigate the cause of the BP well blowout and ensure other rigs were operating safely.

in depth

Companies challenged the ban in court citing financial and economic grounds, and saying there will be thousands of job cuts if the moratorium remains.

Al Jazeera's John Terrett, reporting from Louisiana, said the ruling came dealt a blow to the federal government.

It came as a real surprise and shock for journalists in court when the judges wrapped up the matter less than two hours after final submission, he said.

"[But] this is a temporary victory for Louisiana because the proper appeal begins in August, and this hearing has been about keeping the moratorium open until the appeals process could be heard," our correspondent said.

"In the meantime Ken Salazar, the interior secretary, is busy writing up a second moratorium which he hopes will be watertight and not have the holes picked in it."

The moratorium was first rejected on June 22 by Martin Feldman, a US district judge.

Appeal process

The interior department appealed, asking the appeals court to let the temporary ban stand until it ruled on the merits of the case.

After the moratorium was overturned, Salazar announced he will issue a new, refined moratorium that reflects offshore conditions.

"Effectively the government's getting what they want by default. It's too risky for companies to start up the deepwater drilling process when you know the rug could be pulled out from underneath you"

Dan Pickering, research head, Tudor, Pickering, Holt & Co

"We continue to believe that it is not appropriate to drill new deepwater wells in the Gulf until we can be assured that future drilling activity can be conducted in a safe and environmentally responsible manner," Kendra Barkoff, an interior department spokeswoman, said after Thursday's ruling.

Catherine Wannamaker, a lawyer for several environmental groups that support the moratorium, said she was disappointed by the ruling but expressed confidence that the Obama administration ultimately will win its appeal.

Wannamaker said it is unclear whether any offshore companies would resume drilling because Thursday's ruling does not resolve the case.

"Clearly, it's legally allowed," she said. "The question is, practically speaking, will anybody do it given the uncertainty? It's hard to know what will happen."

Analysts said the ongoing battle over the ban had produced gridlock for the oil drilling companies.

"Effectively the government's getting what they want by default," Dan Pickering, head of research at Tudor, Pickering, Holt & Co, told the Reuters news agency.

"It's too risky for companies to start up the deepwater drilling process when you know the rug could be pulled out from underneath you."