Feb 21 (Reuters) - A federal appeals court drastically limited a New York judge's order allowing church groups to continue to hold religious services inside New York City public schools.

The decision, which was issued Friday evening by a three-judge panel at the 2nd U.S. Circuit Court of Appeals, said a temporary restraining order by U.S. District Judge Loretta Preska only applied to one church group, instead of the many who have been fighting the city law that prohibits using school buildings for worship.

The appeals court panel issued its decision one day after Preska's order, following an emergency appeal by the city.

"We call to the district court's attention an appearance of overbreadth of its order," the appeals court decision said, narrowing Preska's injunction to apply only to the Bronx Household of Faith, which has been locked in a 16-year legal battle with the city over the law.

Preska's order, narrowed by the appeals panel, allows the Bronx church to continue to hold religious services inside a public school for at least 5 more days.

The Bronx Household of Faith had argued that the city regulation violated its constitutional right to exercise religion free from governmental interference.

In staying the regulation, Judge Preska said that the church had demonstrated "irreparable harm and a likelihood of success on the merits."

Preska's order came just eight months after the 2nd Circuit rejected the church's argument that the city's regulation impinged on its right to free speech.

The same judges who took up the issue then, John Walker, Pierre Leval and Guido Calabresi, also issued the Friday order.

The litigation over whether houses of worship should be allowed to hold services in schools began in the mid-1990s, when the church filed its first lawsuit against the city.

The city's rules allow groups to use school buildings during non-school hours for religious instruction, but not for worship.

The provision that allows religious instruction was added to the law following a 2001 Supreme Court decision in Good News Club v. Milford Central School, which invalidated a similar New York law that was deemed overly broad.

Preska had most recently ruled in favor of the church in 2007, when she issued a preliminary injunction stopping the city from enforcing the rule.

The cases are The Bronx Household of Faith v. Board of Education of the City of New York et al., U.S. District Court for the Southern District of New York, No. 01-8598 and In Re: Board of Education of the City of New York, No 12-605, 2nd U.S. Circuit Court of Appeals in New York.

For the church: Jordan Lorence, Benjamin Bull and Joseph Infranco of the Alliance Defense Fund

For the city: Jonathan Pines of the New York City Law Department

(Reporting by Basil Katz and Joseph Ax)

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