A US federal appeals court has ordered a lower court to reconsider the legality of the Pentagon's decision to place Chinese drone giant DJI on a blacklist of companies allegedly linked to China's military, finding flaws in an earlier ruling that relied solely on unclassified evidence.

The US Court of Appeals for the District of Columbia Circuit ordered the lower court to reconsider whether DJI should remain on the Defense Department's Section 1260H list of "Chinese military companies".

It ruled that the judge had erred in relying solely on unclassified evidence to conclude that DJI contributed to China's defense industrial base.

The ruling hands a partial victory to the world's largest drone manufacturer and highlights growing legal scrutiny of Washington's efforts to label prominent Chinese civilian technology companies as having military ties.

DJI has consistently denied links to China's military. The company said its placement on the Pentagon's list had cost it business opportunities, stigmatized it as a national security threat, and prevented several US federal agencies from doing business with it.