A US federal judge in Louisiana has blocked a six-month moratorium on new deepwater drilling projects imposed in response to the Gulf of Mexico oil spill.
The White House said on Tuesday that the administration would appeal the ruling.
The moratorium had halted approval of any new permits for deepwater drilling and suspended drilling at 33 exploratory wells in the Gulf of Mexico.
Martin Feldman, the US district judge in New Orleans, said the moratorium was arbitrarily imposed and that the US interior department failed to provide adequate reasoning for the moratorium.
In a statement released on Tuesday, Feldman wrote: "An invalid agency decision to suspend drilling of wells in depths of over 152 metres feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country."
The moratorium was imposed after the April 20 explosion on the Deepwater Horizon drilling rig that killed 11 workers and blew out the well that has spewed millions of litres of oil into the Gulf of Mexico.
Al Jazeera's John Terret, reporting from New Orleans, said: "This was certainly a surprising decision. Feldman said the Obama administration had failed to provide adequate reasoning for the moratorium and assumed that just because one rig had failed that all companies presently engaged in deep drilling were in imminent danger as well."
The interior department said it imposed the moratorium so it could study the risks of deepwater drilling, but the case filed by Hornbeck Offshore Services of Covington, Louisiana, claimed there was no proof the other operations posed a threat.
The moratorium was declared May 6 and originally was to last only through the month.
Barack Obama, the US president, announced on May 27 that he was extending it for six months.
Bobby Jindal, the governor of Louisiana, along with corporate leaders has opposed the moratorium, saying it will result in drilling rigs leaving the Gulf of Mexico for lucrative business in foreign waters.
They say the loss of business will cost the area thousands of lucrative jobs, most paying more than $50,000 a year. The state's other major economic sector, tourism, is a largely low-wage industry.
In its response to the lawsuit, the interior department said the moratorium is necessary as attempts to stop the leak and clean the Gulf continue and new safety standards are developed.
"A second deepwater blowout could overwhelm the efforts to respond to the current disaster," the interior department said.
The government also challenged contentions the moratorium will lead to long-term economic harm.
Although 33 deepwater drilling sites were affected, there are still 3,600 oil and natural gas production platforms in the Gulf of Mexico, the government said.