A federal appeals court on Thursday rejected the Obama administration’s request to keep a six-month moratorium on deep-water oil drilling, saying the government failed to show it would suffer “irreparable harm” if work resumes on the approved well sites in the Gulf of Mexico.

The decision, issued shortly after the three-judge panel of the U.S. 5th Circuit Court of Appeals heard arguments in a crowded New Orleans courtroom, was a blow to the administration’s plan to cease new drilling operations in waters deeper than 500 feet while investigators probe the cause of the devastating April 20 oil rig explosion and massive spill.

Attorneys for Interior Secretary Ken Salazar had urged the appeals court panel to leave the drilling ban in effect while emergency crews work to contain the oil still gushing out of the damaged wellhead at the rate of up to 60,000 barrels a day.

Eleven people were killed when Deepwater Horizon rig exploded, setting off the biggest offshore oil spill in U.S. history.

One of the three judges dissented, saying he would have granted the government’s request for a stay on the lower court's order. The panel ruled unanimously, however, in calling for an expedited hearing on the merits of the government need for a drilling halt in the wake of the BP spill disaster. That hearing was set for late August.

U.S. District Judge Martin L.C. Feldman struck down the government moratorium on deep-water drilling on June 22, at the urging of drilling-support companies, which argued that the halt threatened devastating economic harm to the region. The companies, led by Hornbeck Offshore Services, argued that Feldman’s ruling was correct in deeming the administration action excessive and unsupported by facts.

As Louisiana Gov. Bobby Jindal sat in the front row of the crowded courtroom, the appeals court judges peppered the lawyers for both sides with questions that foreshadowed their 2-1 ruling against allowing the blanket moratorium.

The judges also questioned the likelihood of another spill occurring, one of the government’s main arguments for keeping the moratorium in place while implementing new safety measures on drilling operations.

-- Carol J. Williams and Nicole Santa Cruz