(Reuters) - The 2nd U.S. Circuit Court of Appeals on Tuesday upheld a federal judge's injunction of a Trump administration rule barring immigrants deemed likely to require government benefits from obtaining permanent U.S. residency, but it limited the injunction's scope to the three states that challenged the policy.

A unanimous three-judge 2nd Circuit panel said the U.S. Citizenship and Immigration Services (USCIS) adopted too broad of a definition of who counts as a "public charge" in the 2019 rule, undermining the intent of Congress in passing the Immigration and Nationality Act (INA).

But because of the potential for federal judges in other places to uphold the rule, the court said, U.S. District Judge Gregory Daniels in Manhattan should have limited the injunction to New York, Vermont and Connecticut - the three states that challenged the rule in a 2019 lawsuit.

The U.S. Supreme Court stayed Daniels' injunction in February, allowing the public charge rule to take effect. Federal judges in San Francisco, Chicago, Maryland and Washington also issued injunctions temporarily blocking the rule last year, prior to the pandemic.

USCIS, a part of the U.S. Department of Homeland Security, did not respond to a request for comment.

Under the rule, USCIS may reject applications for green cards and visas by immigrants who have received government benefits such as Medicaid and food stamps for more than 12 months in any 36-month period.

Previously, permanent residency was only denied for immigrants who were "primarily dependent" upon government assistance.

The three states and a coalition of immigrant advocacy groups filed two separate lawsuits last year challenging the rule, which were consolidated. Both claimed the standards adopted in the rule were arbitrary and capricious, and that USCIS lacked the authority to redefine who counts as a public charge.

Daniels in October largely agreed and granted the plaintiffs' motion for a nationwide temporary injunction pending the outcome of the case.

Last week, after the Supreme Court stayed the order, Daniels issued a second nationwide injunction barring USCIS from enforcing the rule during the coronavirus pandemic. The judge said the rule would discourage immigrants from seeking treatment for COVID-19, endangering public health.

The 2nd Circuit on Tuesday affirmed Daniels' earlier order. If Congress thought that any use of government benefits was incompatible with self-sufficiency, it would have said so in the INA, Circuit Judge Gerard Lynch wrote.

"We are thus left with an agency justification that is unmoored from the nuanced views of Congress," Lynch wrote.

But the panel acknowledged that the 7th and 9th Circuits have both held that the definition of "public charge" under the INA is unsettled. Given the "volatile litigation landscape," Daniels' order should be limited to enforcement of the rule in the states that challenged it, Lynch wrote.

The panel included Circuit Judges Pierre Leval and Peter Hall.

The case is State of New York v. U.S. Department of Homeland Security, 2nd U.S. Circuit Court of Appeals, No. 19-3591.

For the states: Judith Vale of the New York Attorney General's office

For the groups: Jonathan Hurwitz of Paul, Weiss, Rifkind, Wharton & Garrison

For USCIS: Gerard Sinzdak of the U.S. Department of Justice