(Reuters) - A U.S. appeals court on Tuesday upheld Democratic former President Joe Biden's mandate setting a minimum wage that federal contractors must pay to their employees, which recently rose to $17.75 an hour.

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans rejected claims by Texas and two other Republican-led states that Biden in the 2021 executive order overstepped his powers to regulate federal procurement. 

The panel, which reversed a judge in Texas who had blocked Biden's order, said a 1949 federal law allows the president to regulate federal contracting in any way he deems necessary to promote economy and efficiency. 

The decision upholds an order from Biden, a Democrat, but could be a boon to his Republican successor, President Donald Trump, if he uses his powers over federal procurement to implement other parts of his agenda such as eliminating corporate diversity initiatives.

"The EO's language ... shows [Biden] determined that contracting with sources that adequately compensate their workers is vital or essential," Circuit Judge Irma Ramirez, a Biden appointee, wrote for the court.

The panel included Circuit Judges James Graves, an appointee of Democratic former President Barack Obama, and Edith Brown Clement, who was appointed by Republican former President George W. Bush.

The U.S. Department of Justice and the office of Texas Attorney General Ken Paxton, a Republican, did not immediately respond to requests for comment. 

The order from Biden raised the minimum wage for workers on federal contracts to $15 an hour with regular increases, and the U.S. Department of Labor then adopted a rule implementing the wage hike.

The minimum wage increased in January to $17.75 an hour, more than double the $7.25 minimum wage under federal law and higher than any U.S. state.

Trump has not said whether he will rescind Biden's order, which could be done easily. But getting rid of the wage mandate would also require repealing the Labor Department rule, which could take months or longer. 

Texas and the other states that sued claimed the president's powers to oversee federal contracting do not extend to setting wages, and that Biden's order will be costly for the many state agencies that routinely win federal contracts.

U.S. District Judge Drew Tipton, a Trump appointee in Victoria, Texas, agreed in 2023 and blocked the order, but the 5th Circuit on Tuesday reversed.

Tuesday's ruling deepens a split between the San Francisco-based 9th Circuit, which ruled in November that Biden's mandate was likely unlawful, and the 10th Circuit in Denver, which months earlier said Biden had the power to dictate wages paid by contractors. The U.S. Supreme Court last month declined to review the 10th Circuit decision. 

U.S. appeals courts are also divided more broadly over the scope of the president's authority under the 1949 law, the Federal Property and Administrative Services Act, known as the Procurement Act. 

At least four courts have said the law only allows the president to act in specific, narrow ways, but three others have ruled that it authorizes any presidential action designed to promote economy and efficiency in federal contracting.

The case is Texas v. Trump, 5th U.S. Circuit Court of Appeals, No. 23-40671.

For the states: Texas Solicitor General Aaron Nielson

For the United States: Daniel Winik of the U.S. Department of Justice

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(Reporting by Daniel Wiessner in Albany, New York)