The ruling came in response to a suit filed by environmental groups, a local California air regulator and several states who wanted more stringent limits on smog.

At issue was the EPA's April 2004 ruling that 474 of the nation's 2,700 counties in 31 states have unacceptable levels of ground-level ozone, a major ingredient in unhealthy smog.

About 159 million Americans live in counties that violate the new standards, the agency said when it issued the rule.

"We vacate the 2004 Rule and remand the matter to EPA," the court said. "EPA has failed to heed the restrictions on its discretion set forth" in the Clean Air Act.

The EPA will review the decision and decide whether to seek a rehearing, EPA spokeswoman Jennifer Wood said.

"EPA is committed to ensuring our nation's ozone air quality standards are implemented to protect public health and the environment," Wood said.

The EPA in 2004 ordered counties that failed its standards to submit plans to reduce emissions from refineries, power plants and other industrial sources, and advanced a new test that measures ozone levels over an eight-hour period.

Ozone occurs when fumes from automobiles, factories and other fossil fuels react with sunlight. It is linked to human respiratory problems including emphysema and bronchitis.

"This decision is a victory for clean air," said Earthjustice attorney David Baron. "Health experts say we need stronger, not weaker limits on smog."

The new standards actually weaken limits for new and expanded plants, and raises the threshold for triggering emission-reduction rules by a factor of four, Baron said.

The eight-hour ozone test stems from 1997 EPA rules, which had been delayed by numerous court challenges. The US Supreme Court upheld the rules in early 2001.