The rule requires abortion providers to have admitting privileges at a nearby hospital, but a federal appeals court on Monday declared the law unconstitutional.
Supporters of the law claimed it would ensure the safety of women undergoing abortion in the event complications developed.
Opponents, including Planned Parenthood, challenged the law insisting it could force some clinics to close and thereby restrict women's abortion rights.
Monday's ruling by a three-judge panel upholds the decision a federal judge in Madison issued this spring.
The U.S. Supreme Court has agreed to consider a similar law in Texas, which could ultimately determine whether states can impose such conditions on abortion providers.