The judges in the ninth USA circuit court of appeals said he has violated immigration law by discriminating against people based on their nationality.
It keeps in place a decision by U.S. District Judge Derrick Watson in Hawaii that he based largely on Trump's campaign statements calling for a "complete and total shutdown" of Muslims entering the U.S. The first executive order was issued in late January, with no advance notice, causing chaos for some travelers and prompting swift legal challenges. "The 9th Circuit opinion reaches the same conclusion - that the order is in large part invalid - but takes a totally different route".
The judges say the president violated USA immigration law by discriminating against people based on their nationality and that Mr Trump failed to show their entry into the country would hurt American interests.
Paxton told the Free Beacon that Trump's travel ban includes seven countries Obama designated "terrorist hotbeds" and limited travel for people who had lived in or visited Syria, Sudan, and Iraq since March 2011.
The Trump administration argues the measures are needed to ward off terror attacks in the country, but critics say the ban is discriminatory and violates the USA constitution by specifically targeting Muslim-majority countries.
All three judges on the 9th Circuit panel were appointed to the bench by President Bill Clinton.
Hawaii's court papers mentioned a series of Twitter posts that Trump wrote on June 5, after the administration sought Supreme Court intervention. The court said the revised order, which Mr. Trump described as "watered down" in a tweet last week, was still in violation of provisions that "prohibit nationality-based discrimination".
Back in March, a Hawaii federal judge heard Mr Trump's proposed ban discriminated against Muslims and hurt the state's tourist-dependent economy. Critics have said the orders amount to an unconstitutional "Muslim ban" that Trump called for during his presidential campaign.
A United States federal judge in Hawaii indefinitely extended on March 30 a court order blocking Trump's new travel ban.
The 9th Circuit narrowed Mr Watson's ruling in some minor ways, allowing the administration to conduct an internal review of its vetting procedures for refugees and visa applicants. It applied to travelers from the six countries as well as Iraq and took effect immediately, leading to commotion at USA airports as the Homeland Security Department scrambled to figure out who the order covered and how it was to be implemented.
In the tweet, the President refers to unsafe countries rather than considering individual nationals.
"We continue to be confident that the president's executive order to protect this country is fully lawful and will ultimately be upheld by the Supreme Court", said Spicer. He believes the Supreme Court will overturn the Ninth Circuit's decision handed down earlier today by a three-judge panel (see main story).