A US appeals court has ordered the Obama administration to cease enforcing the ban on allowing gay men and women serving openly in the military.
The Ninth US Circuit Court of Appeals lifted a previous ruling which allowed the government to continue enforcing the "don't ask, don't tell" law (DADT).
President Barack Obama has repealed DADT, allowing gay military members to be open about their sexuality. But the law is still being enforced while the Pentagon drafts new rules.
A three-judge panel at the court in San Francisco said DADT must be lifted because the Obama administration concluded in December 2010 that it was unconstitutional to treat gay Americans differently under the law.
"The circumstances and balance of hardships have changed, and [the government] can no longer satisfy the demanding standard for issuance of a stay," the panel said.
The panel noted that Congressional lawmakers repealed the ban on gay military personnel in December and that the Pentagon is in the process of writing new rules for the policy.
The "don't ask, don't tell" law forbids gay soldiers from acknowledging their sexual orientation.
The removal of the ban on gay members of the military came in response to a motion brought by Log Cabin Republicans, an organisation for gay Republican Party members.
Last year, the group persuaded a lower court judge in California to declare the ban, which was formally adopted in 1993, unconstitutional.
But the government appealed US District Judge Virginia Phillips' decision, and the Ninth Circuit Court agreed to keep the policy in place until it could consider the case.
Officials at the Pentagon said on Wednesday they would comply with the court order and inform commanders in the field.
Gay advocates said an appeal from the Pentagon on the ruling is unlikely, considering the Obama administration is committed to repealing the policy.
"The ruling... removes all uncertainty," said Log Cabin Republicans Executive Director R Clarke Cooper.
"American service-members are no longer under threat of discharge as the repeal implementation process goes forward," he added.
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