A U.S. appeals court on Thursday rejected the Obama administration's request to put on hold a ruling that lifted a temporary moratorium on deepwater drilling in the wake of the BP Plc oil spill in the Gulf of Mexico.

The ruling is a setback for the White House which had sought to suspend deepwater drilling of new wells for six months while it investigated the cause of the April 20 explosion aboard the Transocean Ltd. rig and adopt new stricter safety regulations.

It will likely prompt the Interior Department to quickly issue a revised moratorium order on deepwater drilling below 500 feet to address concerns raised by the federal courts.

A department official said earlier on Thursday that such an order would be issued immediately to address any deficiencies, but that could spark yet another legal battle and leave drillers on the sidelines again.

Already some oil services companies have said they would not begin new drilling operations in the region until the legal matters were resolved, and some were moving rigs and workers overseas for projects.

The U.S. Court of Appeals for the Fifth Circuit, based in New Orleans, ruled about 90 minutes after hearing arguments over the administration's request to put on hold a lower court ruling that lifted the six-month moratorium.

U.S. District Judge Martin Feldman lifted the suspension on new deepwater drilling after finding it too broad and arbitrary because it failed to take into account the economic impact it would have on the industry and communities.

The Obama administration appealed and asked for a stay pending the appeal amid fears that another blowout of an oil well in the Gulf of Mexico would be catastrophic and further devastate the region.

The appeals court, in a 2-1 decision, ruled that the administration had failed to show that it would be irreparably harmed if the stay was not granted and that it offered no proof that drilling companies had planned to resume operations during the appeal.

Arguments on the government's appeal seeking to reinstate the original moratorium order were set for the week of August 30.

(Reporting by Jeremy Pelofsky and Chris Baltimore, editing by Paul Simao)

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