A United States court has, at least temporarily, ended a financial crisis for the tiny Caribbean nation of Grenada, which had found itself squeezed by a diplomatic battle between China and Taiwan, officials said Thursday.

Judge Harold Baer of the US District Court for the Southern District of New York freed Grenada from an earlier court order that allowed a Taiwanese bank to seize tourism-related revenues to pay off $30 million in loans.

Taiwan's government Export-Import Bank had loaned the money for infrastructure projects at a time when Grenada gave the island diplomatic recognition. It was part of Taiwan's battle against Chinese attempts to strip it of international recognition. China sees Taiwan as a breakaway province that is still rightfully part of China.

In 2005, Grenada's government dropped Taiwan and recognised Beijing. Its new friend paid for a cricket stadium and gave millions of dollars in aid to recover from the ravages of Hurricane Ivan.

Taipei's foreign ministry accused Grenada's leaders of "extortion-like behaviour" and the Export-Import Bank sued the developing country in the US District Court for the Southern District of New York to get back concessionary loans offered when the two countries were allies.

Under a court ruling, the Export-Import Bank has been collecting payments owed to Grenada by airlines and cruise ship companies for the past nine months.

Baer's ruling means Grenada can once again get those funds. In the decision, he noted that the payments "are used as a source of revenue for carrying out public functions" in Grenada.

"I am very relieved because this has had a significant and adverse reaction on our cash flow," said Ambrose Phillip, general manager of the Grenada Port Authority, one of several island agencies targeted by the bank. "We anticipate that we will be able to recover these funds soon."

Paul Summit, a Boston-based lawyer for the Export-Import Bank, said he plans to appeal the judge's ruling.

The case is being closely watched by other small island nations that have long leveraged political support for the two Asian rivals. Just over half of the 23 countries that retain ties with Taipei are in Central America and the Caribbean, where Beijing has sharply increased its investments and loan-backed construction in recent years. The others are in Africa and the South Pacific.

The 15-nation Caribbean Community bloc had complained that the Taiwanese bank's "unprecedented legal measures" amounted to "economic strangulation" of tourism-dependent Grenada.

Grenadian Finance Minister Nazim Burke says Taiwan should be repaid, but he argues that the loans are owed by the central government, not by the agencies he insists are independently run. He blamed the administration of former Prime Minister Keith Mitchell, now leader of the Opposition, with botching the 2005 diplomatic switch, saying Taiwan's response should have been anticipated.

"They naturally felt they wanted to teach Grenada a lesson as a result of its decision. What we were stunned by was the level of aggressiveness with which Taiwan pursued their position and unrelenting resolve," Burke said in an interview with The Associated Press in his office this month.

A top delegation from China's Export-Import Bank visited Grenada in recent weeks, signing a memorandum of understanding giving the island access to a $1-billion loan programme for Caribbean economic development that was first announced last year. But Beijing has not indicated it will bail Grenada out of its debt dispute with Taiwan.

"(China) knows that Grenada is not going to 'revert' to recognise Taiwan, given the time passed, the bad blood, and the current diplomatic rapprochement," R Evan Ellis, an assistant professor at National Defence University in Washington, wrote in an e-mail.