WASHINGTON (Reuters) - President George W. Bush cannot order the military to indefinitely imprison a suspected al Qaeda operative, who is the only foreign national held in the United States as an “enemy combatant,” a court ruled on Monday.

Ali Saleh Kahlah al-Marri in an undated photo. President Bush cannot order the military to seize and indefinitely detain the Qatari national and suspected al Qaeda operative, the only person being held in the United States as an "enemy combatant", an appeals court ruled on Monday. REUTERS/Peoria County Sheriff's Office/Handout

The 2-1 appellate ruling was a major setback for Bush’s contention in the war on terrorism that he has the power to detain people in the United States without charging them.

The court panel based in Richmond, Virginia, ruled that the Qatari national involved, Ali Saleh Kahlah al-Marri, must be released from military custody.

“The decision protects legal residents and citizens from secret detention,” said al-Marri’s lawyer, Jonathan Hafetz of the Brennan Centre for Justice in New York.

The fresh blow to Bush’s policies, already under scrutiny on Capitol Hill and in military tribunals, followed last week’s dismissal of charges against two terrorism suspects at the U.S. prison at Guantanamo Bay in Cuba.

Judges in those high-profile cases have been considering acceptable standards for trying terrorism suspects since the September 11 attacks.

The Pentagon is asking for reconsideration of the rulings that two were being held in the controversial prison because they were designated only as “enemy combatants,” and not “unlawful enemy combatants” as required by a 2006 law crafted after earlier definitions were rejected.

In the case involving al-Marri, who has been held in a U.S. Navy brig in Charleston, South Carolina, for about four years without charges, Judge Diana Gribbon Motz made a clear distinction for suspects being held in the United States.

“The government cannot subject al-Marri to indefinite military detention. For in the United States, the military cannot seize and imprison civilians -- let alone imprison them indefinitely,” she said.

The ruling sent the case back to a federal judge in South Carolina with instructions to direct the defence secretary to release al-Marri from military custody within a reasonable period of time.

The government can transfer him to civilian authorities to face criminal charges, initiate deportation proceedings, hold him as a witness in a grand jury proceeding or detain him for a limited period under the Patriot Act, an anti-terrorism law.

MILITARY DETENTION MUST CEASE

“But military detention of al-Marri must cease,” Motz concluded in her 77-page ruling rejecting the administration’s argument that Bush has the legal power to keep him indefinitely.

She also rejected the argument that the 2006 law passed by the Republican-controlled U.S. Congress takes away such cases from U.S. courts.

Al-Marri entered the United States on September 10, 2001, and was said by a captured al Qaeda member to be there to help operatives planning a second wave of attacks.

Al-Marri was a legal U.S. resident and was initially detained in December 2001 to testify in the investigation of the September 11 attacks.

He later was indicted in Illinois, where he attended school, for credit card fraud, making false statements to the FBI and other charges. Al-Marri pleaded not guilty.

The U.S. government dropped the charges on June 23, 2003, when Bush designated him an enemy combatant and al-Marri was taken to Charleston.

Besides al-Marri, only two others have been held as enemy combatants inside the United States since the hijacked airliner attacks.

In January of 2006, Jose Padilla, who had been held for three years at the same brig in Charleston, had his case transferred to a criminal court in Miami, where his trial is now under way.

And Yaser Esam Hamdi, another U.S. citizen held at the brig for two years, was deported to Saudi Arabia after the U.S. Supreme Court in 2004 upheld his right to challenge his detention.

The Justice Department said it would appeal the ruling to the entire appeals court.