A federal appeals court said Friday the Bush administration ignored the law when it imposed less stringent requirements on power plants to reduce mercury pollution, which scientists fear could cause neurological problems in 60,000 newborns a year.

A three-judge panel unanimous struck down a mercury-control plan imposed by the Environmental Protection Agency three years ago. It established an emissions trading process in which some plants could avoid installing the best mercury control technology available by buying pollution credits.

Environmentalist and health experts argued that such a cap-and-trading mechanism would create “hot spots” of mercury contamination near some power plants. Seventeen states as well as environmental and health groups joined in a suit to block the regulation, saying it did not adequately protect public health.

Dan Riedinger, a spokesman for the Edison Electric Institute, an association of power companies, called the court decision “a major setback … to establish clear mercury regulations for coal-burning power plants.”