US federal appeals court ruled on Wednesday that a programme that has protected hundreds of thousands of young immigrants from deportation was unlawful.
However it said current enrollees could renew their status.
The federal appeals court sent the case back to a lower court to consider a new Biden administration regulation.
A panel of three judges from the conservative-leaning 5th US Circuit Court of Appeals affirmed a lower court's ruling against the programme, called Deferred Action for Childhood Arrivals (DACA), but remanded the case in light of a new regulation issued in August.
The decision is a mixed one for US President Joe Biden, who said he wants a permanent pathway to citizenship for DACA recipients - often known as "Dreamers."
The court allowed for the current 594,000 DACA enrollees to maintain their status, but continues to block new applications.
