A U.S. federal court recently blocked controversial new Federal Communications Commission media ownership rules pending a full judicial review, a blow to large media companies hoping to grow.

In a loss also for the architect of the rules, Republican FCC Chairman Michael Powell, the three-judge panel of the Third U.S. Circuit Court of Appeals in Philadelphia granted a stay barring the rules from taking effect as scheduled on Thursday.

"Given the magnitude of this matter, and the public's interest in reaching the proper resolution, a stay is warranted pending thorough and efficient judicial review," the three-page judicial order stated, issued five hours after a hearing.

The new FCC rules would allow a single media company to own local television stations that collectively reach up to 45 percent of the national television audience -- up from 35 percent. In most cities, companies also would be able to own a newspaper, television stations and radio outlets.

Critics argued that the new FCC rules would concentrate too much power in the hands of media moguls while proponents said they need to expand to compete with cable and satellite.

"While we are disappointed by the decision by the court to stay the new rules, we will continue to vigorously defend them and look forward to a decision by the court on the merits," said FCC spokesman David Fiske.

The new rules were backed by media giants including Viacom Inc.'s CBS, General Electric Co.'s NBC and News Corp. Ltd's Fox television networks, none of which had any immediate comment on the stay order.

MEDIA MARKET REFORMS

The ruling marks the latest skirmish in a battle over media market reforms that have pitted the FCC and leading media companies against an unusual alliance of Democrats and Republicans in Congress, consumer advocates and conservative groups, including the National Rifle Association.

"Between the FCC, the courts and Congress, the final rules have not yet been written, but in light of the congressional debate, the deals were kind of on hold anyway," said Blair Levin, an analyst with Legg Mason in Washington, referring to the expected acquisitions of new stations by media companies.

After its review, the court will either uphold the rules or it will compel the FCC to revise them. In either case, the decision can be appealed.

The court's order was requested by a media-activist group called the Prometheus Radio Project, which argued that the new rules would precipitate a new wave of media consolidation.

The panel headed by Circuit Chief Judge Anthony Scirica said that not granting a stay and allowing the rules to come into effect as scheduled would have harmed the interests of Prometheus and other FCC critics who fear the regulations would further narrow the existing diversity of media views.

By contrast, the judges concluded there was little evidence to suggest that the FCC and large media companies who have backed the rule change would be harmed by a delay.

"We're pleased and optimistic we can prevail ultimately on appeal," said Andy Schwartzman, an attorney for the public interest law firm Media Access Project, which represented Prometheus at Wednesday's hearing.

"Perhaps it will embolden Congress to overturn the entire decision, which will save everyone a lot of time and effort fighting it out in the court to obtain the same result," he said.

Measures in both the U.S. Senate and House of Representatives would put the ceiling on national audience back to 35 percent. The Senate effort would also restore the ban on cross-ownership of newspapers and broadcast outlets and limit ownership of multiple broadcast stations in a market.