BOSTON (Reuters) - A federal judge on Friday temporarily blocked U.S. President Donald Trump's administration from freezing federal loans, grants and other financial assistance to 22 states, barring the Republican for now from implementing a policy that had stoked confusion and fears about critical government-funded services being disrupted.

The ruling by U.S. District Judge John McConnell in Providence, Rhode Island came at the behest of Democratic attorneys generals from 22 states and the District of Columbia and despite the White House saying it was rescinding Monday's memo from its budget office detailing the policy.

The temporary restraining order will be in place until further order of the court while the judge considers whether to issue a longer preliminary injunction.

The memo that prompted the litigation came from the acting director of the Office of Management and Budget and had detailed a sweeping directive to halt funding as part of Trump's broader effort to overhaul the federal government.

Trump has already issued orders that aim to stop foreign aid, freeze hiring, shutter diversity programs across dozens of agencies, and reclassify federal workers to make them easier to fire while offering financial incentives to millions more to resign to shrink the government's size.

States received $1.11 trillion in grants in fiscal year 2022, the most recent year for which data is available, according to the Pew Charitable Trusts, amounting to 36.4% of the states' combined total revenue.

The Democratic state attorneys general said the memo from Matthew Vaeth, OMB's acting director, jeopardized over $1 trillion in grants states receive from the federal government to help pay for health care, education, transportation and other services.

The memo directed that funds be put on hold while the administration reviewed grants and loans to ensure they are aligned with Trump's priorities, including executive orders he signed ending diversity, equity and inclusion programs.

The states argued that the White House policy failed to account for the harm it would impose on grant recipients and violated the U.S. Constitution by usurping Congress's power to decide how federal money is spent.

A 1974 law called the Impoundment Control Act established procedures designed to restrict a president from not spending money appropriated by Congress. Trump, though, has said he believes the president has the power to withhold money if he disagrees.

State attorneys general and advocacy groups representing non-profits, small businesses and healthcare professionals raced to court on Tuesday to challenge the freeze, and a judge in Washington, D.C., put it on hold shortly before it was to take effect to allow her to consider one of the two court cases.

That order, an administrative stay issued by U.S. District Judge Loren AliKhan, is set to expire on Monday afternoon. She has scheduled a hearing for that day on whether she should likewise issue a temporary restraining order.

Amid the litigation, the White House tried to clarify the pause, saying it would not impact Social Security or Medicare payments or assistance provided directly to individuals and only implicated programs covered by Trump's executive orders.

OMB then fully withdrew its memo on Wednesday, shortly before a hearing in a lawsuit by the 22 states and District of Columbia before McConnell, an appointee of Democratic former President Barack Obama. The administration said with the memo now rescinded, there was nothing to sue over.

But Sarah Rice, a lawyer with Rhode Island Attorney General Peter Neronha's office, told McConnell during the hearing that all the administration had done was rescind a "piece of paper," not the underlying policy.

She pointed to a post on X by White House Press Secretary Karoline Leavitt shortly before the hearing concerning the memo's withdrawal that declared: "This is NOT a rescission of the federal funding freeze."

"The policy has not changed and that policy to sum it up is freeze first, ask questions later," Rice said in court.