The preliminary decision came in a trade dispute with Antigua and Barbuda. The tiny Caribbean nation had contended that U.S. restrictions on Internet gambling violated trade commitments the United States has made as a member of the WTO.
Antigua and Barbuda brought the case before the WTO last year, contending that U.S. prohibitions on Americans placing bets in offshore Internet casinos represented an unfair trade barrier.
The losing side in any WTO case has the right to appeal the decision to the WTO's seven-member appellate body of trade judges.
"We intend to appeal and will argue vigorously that this deeply flawed panel report must be corrected by the appellate body," said Richard Mills, a spokesman for U.S. Trade Representative Robert Zoellick.
Mills said the preliminary ruling by the WTO hearing panel had not taken into account the negotiating record in the Uruguay Round of global trade talks, which created the WTO in 1995.
"We believe that the language on U.S. services commitments used by the Clinton administration clearly intended to exclude gambling when the United States joined the WTO in 1995," Mills said.
Antiguan authorities had argued that restrictions that barred U.S. residents from betting at offshore casinos were harming Antigua's efforts to diversify its economy. The country has been promoting electronic commerce as a way to end the twin-island nation's reliance on tourism, a sector hurt by a series of hurricanes in the late 1990s.
The current legal status of Internet gambling in the United States is in dispute. Some site operators have been prosecuted under the 1961 Wire Communications Act, which was written to cover sports betting by telephone.
The General Accounting Office has estimated there are 1,800 Internet gambling operations. Virtually all of them are based outside of the United States, posing an enforcement problem for U.S. authorities.
Ronald Sanders, Antigua's chief foreign affairs representative, had argued before the WTO that the Internet gambling industry was providing much-needed employment for Antigua's youth who otherwise might be forced into drug trafficking to make a living.
Sanders estimated that online casinos employed some 3,000 of the 67,000 residents of Antigua.