NEW YORK, May 4 (Reuters) - New York City suffered a setback on Wednesday when a federal appeals court ordered it to make changes to a court-ordered plan to crack down on illegal sales at two gun shops in the U.S. South accused of violating federal gun-purchase laws.

The 2nd Circuit Court of Appeals threw out an injunction subjecting the shops to New York City's stringent monitoring requirements, saying the plan failed to give the stores a clear idea of what constituted a violation.

The "broad power" afforded to a special master to enforce the dealers' compliance raises "serious constitutional questions," wrote Circuit Judge Robert Sack, joined in the majority by Judge Richard Wesley and Judge Richard Eaton, a U.S. Court of International Trade judge assigned to the appeal.

However, the appeals court upheld the original entry of default judgment against Mickalis Pawn Shop LLC of South Carolina and Adventure Outdoors Inc. of Georgia, which separately dropped their defenses of the suit, handing a default win to the city.

City officials acknowledged Wednesday that "tweaks" would be made to the monitoring plan when the injunction returns to the lower court for revision. But they believed the appeals court ruling affirmed the general concept of gun dealer monitoring, despite its quibbles with the scope of the plans.

"The laws the dealers will have to comply with are limited and the powers of the special master are limited, but not in such a way as to make them ineffective in monitoring these dealers," said Eric Proshansky, Assistant Corporation Counsel of the City of New York.

CITY CITES SUCCESS

The city says its gun monitoring program -- instituted at numerous gun dealers sued by the city in 2006 -- have been a huge success at keeping illegal firearms off New York streets. According to preliminary city data, the number of guns going in and out of the city since the first monitorships were implemented have fallen roughly 75 percent.

Mickalis Pawn Shop and Adventure Outdoors were two of 15 gun dealers sued by New York City in 2006 for public nuisance violations, following a series of sting operations that uncovered alleged illegal "straw man purchases" made on behalf of disqualified individuals at gun dealers in Southern states.

Most of the defendants were dropped from the suit or settled out of court under agreements similar to the terms of the injunction.

New York City said it had standing to bring public nuisance claims against the out-of-state gun dealers because the guns had wound up being illegally trafficked to its jurisdiction. The appeals court did not weigh in on the jurisdiction question, which was essentially mooted by the default judgment.

Calls to the gun dealers' attorneys were not immediately returned.

The cases are City of New York v. Mickalis Pawn Shop LLC, and City of New York v. Adventure Outdoors Inc., in the U.S. 2nd Circuit Court of Appeals; numbers 08-4804; 09-1345.

For the city: Frederick Brodie and Kenneth Taber of Pillsbury Winthrop Shaw Pittman LLP; Eric Proshansky, Assistant Corporation Counsel of the City of New York.

For Mickalis Pawn Shop: Justin Kahn of Kahn Law Firm.

For Adventure Outdoors: John Renzulli of Renzulli Law Firm. (Reporting by Jessica Dye; Editing by Howard Goller)