(Reuters) - President Donald Trump's administration on Thursday asked a federal appeals court to let Trump remove Federal Reserve Governor Lisa Cook for now, a move Cook's lawyers said could cause market turmoil with the central bank set to meet next week to decide on interest rates.

Trump moved to fire Cook in late August, but U.S. District Judge Jia Cobb on Tuesday temporarily blocked her removal. The Justice Department on Thursday asked the D.C. Circuit Court of Appeals to pause that order, which would allow Cook's removal while she challenges her firing in court.

Trump has accused Cook of mortgage fraud. The DOJ asked the appeals court to move quickly so that the president can remove her from her position before a September 16-17 policy meeting where the U.S. central bank is expected to cut interest rates.

Cook's lawyers said removing her now could disrupt that meeting.

"It has the real potential of impacting domestic and foreign markets," her lawyers wrote in a Thursday evening court filing. 

Cook, who denies any wrongdoing, filed a lawsuit saying Trump's claim she engaged in mortgage fraud before she joined the central bank did not give him authority to remove her, and was a pretext to fire her for her monetary policy stance.

The case, which will likely end up before the U.S. Supreme Court, has ramifications for the Fed's ability to set interest rates without regard to politicians' wishes, widely seen as critical to any central bank's ability to control inflation.

The Supreme Court and lower appeals courts including the D.C. Circuit have temporarily lifted several other rulings that briefly blocked Trump from firing officials at historically independent agencies. 

On Wednesday, however, the D.C. Circuit blocked Trump from firing U.S. Copyright Office director Shira Perlmutter while she appeals a lower court's refusal to reinstate her. 

TRUMP DEMANDS RATE CUTS

Trump has demanded that the Fed cut rates immediately and aggressively, berating Fed Chair Jerome Powell. Cook has voted with the Fed's majority on every rate decision since she started in 2022, including on both hikes and cuts. 

The law that created the Fed says governors may be removed only "for cause," but does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.  

The DOJ said in Thursday's filing that removing Cook would "strengthen, not diminish, the Federal Reserve's integrity."

Cook's lawyers wrote, "Preventing the President from wresting control over this country's independent central bank does not constitute irreparable harm to the Government."

Cobb on Tuesday said the public's interest in the Fed's independence from political coercion weighed in favor of keeping Cook at the Fed for now. 

She said that the best reading of the law is that a Fed governor may only be removed for misconduct while in office. The mortgage fraud claims against Cook relate to actions she took prior to her 2022 U.S. Senate confirmation.

Trump and William Pulte, the Federal Housing Finance Agency director appointed by the president, say Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to secure lower interest rates.

The U.S. Justice Department has also launched a criminal mortgage fraud probe into Cook, according to documents seen by Reuters and a source familiar with the matter.