A federal appeals court has ruled that the Trump administration's restrictions on transgender people serving in the military can stand for now.

Trump first tried back in July 2017 to ban transgender people from serving 'in any capacity' in the military but after facing legal opposition he last year moved instead to limit the service of those who 'may require substantial medical treatment'.

The Pentagon was then blocked from implementing the ban by a lower court judge, a ruling that the US Court of Appeals for the DC Circuit overturned on Friday.

The court said that the plan devised by former Defense Secretary James Mattis still allowed transgender people to serve 'in their biological sex' and that military reports had found that 'not all transgender persons seek to transition to their preferred gender'.

The plan 'appears to permit some transgender individuals to serve in the military', the judges said.

'Thus, the district court erred in finding that the Mattis plan was a blanket transgender ban,' they said.

They added, 'In light of the substantial constitutional arguments and the apparent showing that the policy accommodates at least some of Plaintiffs' interests, we think that the public interest weighs in favor of dissolving the injunction.'

The ruling was welcomed by Family Research Council's executive vice president and retired Lieutenant General William Boykin.

'This is a victory for our service members who are tasked with defending America because it allows our military leaders to focus their mission on fighting and winning wars rather than social engineering,' he said.

He continued: 'The appeals court ruling helps pave the way for President Trump to continue moving the military away from Obama era political correctness which left our nation's defenses at its lowest levels of readiness since before WWII.

'There is no basis for the courts to take up President Obama's mission to divert taxpayer dollars from mission-critical training to funding for controversial gender reassignment surgeries for service members.'

Liberty Counsel chairman Mat Staver agreed, saying that service members could not serve and protect America 'when they are forced to function with confusion, dysfunction, and distraction'.

'The report from the Defense Department concludes that there are substantial risks to military effectiveness and readiness regarding people who have gender dysphoria,' he said.

'The military is not a social club but rather a fine-tuned fighting machine of men and women who defend our freedom. It is not a right but a privilege to serve.'

Despite Friday's ruling, the Pentagon still cannot implement the planned restrictions as other judges have imposed injunctions that are still in place.

A survey by Smithsonian published this month found that the Trump administration's position enjoys broad support in the military.

In the survey of 1,031 service members and veterans, only 39 per cent agreed that transgender people should be allowed to serve in the military.