It comes after a judge temporarily halted the order on Tuesday, only hours after it was signed by President Donald Trump and the memo announcing it was issued by the Office of Management and Budget (OMB).

The judge paused the order until next Monday, after a lawsuit was filed by a group of organisations representing grant recipients.

The new letter issued on Wednesday states”OMB Memorandum M-25-13 is rescinded.”

It is unclear what prompted the apparent U-turn.

In a statement, White House Press Secretary Karoline Leavitt said the administration was still pursuing a freeze.

“This is NOT a rescission of the federal funding freeze. It is simply a rescission of the OMB memo,” she said. “Why? To end any confusion created by the court’s injunction. The President’s EO’s on federal funding remain in full force and effect, and will be rigorously implemented.”

The BBC has asked the White House to clarify how it plans to continue in light of Trump’s decision to rescind the memo as well as the judge’s injunction.

Earlier this week, the acting head of the White House budget office had instructed agencies to “temporarily pause all activities related to obligations or disbursement of all federal financial assistance”.

The office said the move was intended to give the new administration time to assess what grants and loans were in step with their agenda.

But the order prompted widespread confusion about which agencies and programmes would be impacted. An online portal used to access federal funds was briefly taken offline and aid groups warned about a suspension in services.

In response to the latest move, Democrats abruptly shifted a news conference scheduled for Tuesday on Trump’s move to end birthright citizenship to condemn the move to freeze all federal funding instead.

“What they’re basically doing is being lawless – to hurt families, to help their billionaire friends,” Senate Democratic Minority Leader Chuck Schumer told reporters after the order was rescinded.

He added that Republicans will continue to attempt to block future funding, and were only stopped this time due to an “outcry” from the public.

“I don’t think this would have happened, except for the outcry throughout America. And we in the Senate are working with our constituents to show that outcry. We’re going to keep fighting,” he added.

Schumer also said that Trump should next rescind his nominee to lead the OMB.

The order was one of several Trump has issued since taking office, aimed at cutting the size of the government and slashing federal spending. Other orders target transgender rights and the automatic citizenship granted to anyone born in the US.

Also on Tuesday, the Trump administration offered federal workers and option to resign and continue to receive pay for eight months, in an effort to further reduce the size of the federal workforce.

On Tuesday, Leavitt had said the halt in funding would allow governments to cut back spending for “woke” gender issues and diversity programmes.

Several states had reported issues accessing funds through Medicaid, a government health insurance programme for low-income people. The White House later said the programme would not be affected.

It also said Social Security benefits would not be affected, nor would any programme “that provides direct benefits to individuals”, including Supplemental Nutrition Assistance Program, known as SNAP or food stamps.

Although the order has been blocked for now, the White House believes that the original memo served its purpose by prompting federal agencies to take steps to comply with the president’s executive order.

2:41Watch: Almost everything Trump did in his whirlwind first week

The freeze would have stalled funding for “a multitude of important programs that impact people’s lives,” Diane Yentel, president and CEO of National Council of Nonprofits, said in an emergency press call on Tuesday.

It would severely impact food and housing programmes for military veterans, shelters for survivors of domestic violence, and childcare assistance, said Ms Yentel, who represents one of the groups suing the White House over the order.

Judge Loren AliKhan’s order to pause the plan until next Monday at 17:00 EST (22:00 GMT) came in response to a lawsuit filed earlier in the day by a group of organisations representing grant recipients.

The lawsuit claims the White House’s temporary freezing of already approved funding violates the law.

In the hours before the order was due to take effect, there was widespread confusion about which agencies and programmes would be impacted.

The acting head of the White House budget office had instructed agencies to “temporarily pause all activities related to obligations or disbursement of all federal financial assistance”.

It said the move was intended to give the new administration time to assess what grants and loans were in step with their agenda.

White House Press Secretary Karoline Leavitt said Trump’s plan to pause billions of dollars in US government funding was about being “good stewards of tax dollars”.

Speaking to reporters in her first ever briefing, she said the pause in funding would allow governments to cut back spending for “woke” gender issues and diversity programmes.

But it prompted confusion, as well as anger from opposition figures, on Tuesday as those who receive federal loans and grants – such as non-profits and research organisations – reckoned with the reality of swiftly losing funding.

Judge AliKhan on Tuesday said she was issuing a brief stay that would “preserve the status quo” until she can hold an oral argument, now set for Monday morning.

The White House directive could have impacted billions of dollars meant for federal programmes, from disaster relief to cancer research.

In a post on X, Diane Yentel, the president of the National Council of Nonprofits, the organisation that brought the lawsuit, celebrated the ruling.

“Our lawsuit was successful – the US district court is blocking OMB (Office of Management and Budget) from moving forward on its reckless plan to halt federal funding,” she wrote.

In the lawsuit, her organisation wrote that Trump’s order seeks to “eradicate essentially all federal grant programs”.

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It argues that Trump’s order is “devoid of any legal basis or the barest rationale” and will have ripple effects throughout the entire United States and beyond.

This is separate from an action by a coalition of Democratic states who filed a lawsuit later on Tuesday to block the order, calling it unconstitutional.

Stephen Miller, the White House’s deputy chief of staff, also defended the directive before the judge’s decision was announced, telling reporters that this would allow the government to get “credit control”.

“It does not impact any federal programmes that Americans rely on,” he said, answering a question about whether “Meals on Wheels” food delivery programme would be affected.

On Tuesday, several states reported issues accessing funds through Medicaid, a government health insurance programme for low-income people. The White House later said the programme would not be affected and that the problem would be resolved soon.

It also said Social Security benefits would not be affected, nor would any programme “that provides direct benefits to individuals”, including Supplemental Nutrition Assistance Program, known as SNAP or food stamps.

In a letter to the White House, top Democrats expressed “extreme alarm” about the plan to pause funding.

“The scope of what you are ordering is breathtaking, unprecedented, and will have devastating consequences across the country,” wrote Washington Senator Patty Murray and Connecticut Congresswoman Rosa DeLauro.

Democratic minority leader of the US Senate, Chuck Schumer, said the move would cause missed payrolls and rent payments, and cause “chaos”.

The two-page memo, from the acting head of the White House budget office, instructs agencies to “temporarily pause all activities related to obligations or disbursement of all Federal financial assistance”.

Much about the order, which goes into effect on Tuesday afternoon, and its scope remain unclear, sowing widespread confusion.

The directive could paralyse billions of dollars meant for federal programmes, from disaster relief to cancer research, though Medicare and social security benefits will not be affected.

Democrats have assailed the freeze, saying it will bring chaos and harm to millions of Americans.

In a letter to the White House, top Democratics expressed “extreme alarm”.

“The scope of what you are ordering is breathtaking, unprecedented, and will have devastating consequences across the country,” wrote Washington Senator Patty Murray and Connecticut Congresswoman Rosa DeLauro.

“We write today to urge you in the strongest possible terms to uphold the law and the Constitution and ensure all federal resources are delivered in accordance with the law.”

In the memo, which comes days after the US halted nearly all foreign aid, the acting head of the Office of Management and Budget (OMB) Matthew Vaeth called on government agencies to ensure spending is consistent with Trump’s priorities.

Federal agencies must “temporarily pause all activities related to obligation or disbursement of all federal financial assistance,” and any other programs that included “DEI, woke gender ideology and the Green New Deal,” Vaeth wrote.

Vaeth suggested that the pause would last until at least mid-February, asking agencies to provide a detailed report on the programmes that have been affected by 10 February.

He specifies that Medicare and Social Security benefits are not included in the pause. Other programmes through which aid “is received directly by individuals” are also exempt.

But it remains uncertain how much money is involved. The memo suggests that the federal government spent $10tn (£8tn) in fiscal year 2024, more than $3tn of which went to federal financial assistance. But the source of those numbers is unclear. The nonpartisan Congressional Budget Office reported that the government spent $6.7tn that year.

The White House has not yet commented officially on the leaked document.

Nonprofit groups have responded in distress.

2:41Watch: Almost everything Trump did in his whirlwind first week

“This order is a potential five-alarm fire for nonprofit organizations and the people and communities they serve,” Diane Yentel, the chief executive of the National Council of Nonprofits, said in a statement.

“From pausing research on cures for childhood cancer to halting food assistance, safety from domestic violence and closing suicide hotlines, the impact of even a short pause in funding could be devastating and cost lives,” she added.

The move follows last week’s news that the Department of State had issued a halt to nearly all existing foreign assistance and paused new aid, according to an internal memo sent to officials and US embassies abroad.

It appeared to affect everything from development assistance to military aid, making exceptions only for emergency food aid and for military funding for Israel and Egypt.

Trump earlier issued an executive order for a 90-day pause in foreign development assistance pending a review of efficiencies and consistency with his foreign policy.

The US is the world’s biggest international aid donor, having spent $68bn (£66bn) in 2023 according to government figures. The State Department notice appears to affect everything from development assistance to military aid.

In the memo, the acting head of the Office of Management and Budget (OMB) calls on government agencies to ensure spending is consistent with Trump’s priorities.

The full impact of the pause is not yet clear, although the memo specifies that Medicare and Social Security benefits are not affected. It comes days after the US halted nearly all foreign aid.

The move has been criticised by members of the rival Democratic Party who warn of “devastating consequences” on programmes that people rely on.

Diane Yentel of the National Council of Nonprofits said the order could stop cancer research, food assistance and suicide hotlines.

Given the spending that is now on hold was apportioned by Congress, it is likely this will face legal challenges about the scope of presidential power.

The memo, signed by acting OMB chief Matthew Vaeth, calls on government agencies to temporarily pause their financial assistance programmes, so they can review spending that could be impacted by the various orders Trump has signed .

It says this encompasses “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal”.

2:41Watch: Almost everything Trump did in his whirlwind first week

A deadline of 17:00 EST (22:00 GMT) has been set. Each agency is told to pause the issuing of new awards as well as the disbursement of funds under existing awards.

The memo further demands that all agencies report which programmes have been paused by 10 February.

The White House has not yet commented officially on the leaked document.

Democrats in Washington DC were quick to sound an alarm of concern about the plan.

The top Democratic appropriators in Congress – Washington Senator Patty Murray and Connecticut Congresswoman Rosa DeLauro – sent a letter to the White House Monday evening expressing their “extreme alarm” with the memo.

“The scope of what you are ordering is breathtaking, unprecedented, and will have devastating consequences across the country,” the congresswomen wrote. “We write today to urge you in the strongest possible terms to uphold the law and the Constitution and ensure all federal resources are delivered in accordance with the law.”

The Democratic minority leader of the US Senate, Chuck Schumer, was also critical of the pause: “Congress approved these investments and they are not optional; they are the law.”

He added: “It will mean missed payrolls and rent payments and everything in between: chaos for everything from universities to non-profit charities.”

The move follows last week’s news that the Department of State had issued a halt to nearly all existing foreign assistance and paused new aid, according to an internal memo sent to officials and US embassies abroad.

It appeared to affect everything from development assistance to military aid, making exceptions only for emergency food aid and for military funding for Israel and Egypt.

Trump had earlier issued an executive order for a 90-day pause in foreign development assistance pending a review of efficiencies and consistency with his foreign policy.

The US is the world’s biggest international aid donor, having spent $68bn (£66bn) in 2023 according to government figures. The State Department notice appears to affect everything from development assistance to military aid.