Two months ago, a federal judge blocked the order from being enforced, calling it "deeply flawed".
Judge Rudolph Contreras put the Pentagon's decision on hold, saying the government had failed to show that Xiaomi had links to the Chinese military.
After the order was challenged, the Defence Department said one of the reasons for blacklisting the firm had been the award given to the chief executive Lei Jun for his service to the state in 2019.
Judge Contreras did not agree with the reasoning behind the ban. “Xiaomi is a publicly traded company that produces commercial products for civilian use, is controlled by its independent board and controlling shareholders, and is not effectively controlled or associated with others under the ownership or control of the PRC [People's Republic of China] or its security services,” he said when putting the order on hold.
The ban on Xiaomi was put in place in January, along with eight other companies.
Chinese companies TikTok and WeChat have also won court victories against orders issued by the Trump administration.
A National Security Council statement said: “US courts found that the Trump administration failed to develop a legally sufficient basis for imposing restrictions on the company and compelled this action.
"The Biden administration is deeply concerned about potential US investments in companies linked to the Chinese military and is fully committed to keeping up pressure on such companies."