By John McCrank, Alexandra Alper and Pei Li

NEW YORK/WASHINGTON/HONG KONG/ (Reuters) - The New York Stock Exchange is reconsidering its plan to allow three Chinese telecom giants to remain listed, the latest twist to a saga amid confusion over rules set by the Trump administration and tension within Washington on China policy.

If it does so, it would mark a second sudden U-turn. The bourse said late Monday it reversed a decision announced just last week to delist China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd after consulting with regulatory authorities in connection with the U.S. Treasury's Office of Foreign Assets Control.

The about-face was due to ambiguity over an executive order issued by President Donald Trump barring investment in firms Washington says are tied to the Chinese military, and whether the three firms were banned under the order, a source familiar with the matter said on Tuesday.

However, it will go ahead with the delistings, which were planned on or before Jan. 11, if it deems the companies are subject to the order, said the person who asked to remain anonymous because the discussions are ongoing.

Bloomberg earlier reported that the NYSE may flip back.

U.S. Treasury Secretary Steven Mnuchin phoned New York Stock Exchange President Stacey Cunningham on Tuesday to tell her he disagreed with the exchange operator's decision to reverse course on the delistings, a separate source said.

Coming in the final days of the Trump presidency, the back and forth at the NYSE underscored the lack of clarity about, and the tensions around, the implementation and implications of the administration's ban on investment in 35 Chinese companies.

One China expert who has worked with Congress on delisting issues said the NYSE may have made the U-turn if they sought clarity from Treasury about the rules and been told they did not need to delist.

Republican Senator and China hardliner Marco Rubio expressed outrage that the U.S. Treasury may have caused the NYSE to wind back the delisting procedures.

"If it is true that someone at (Treasury) advised (NYSE) to reverse the decision to delist these Chinese companies, it was a outrageous effort to undermine (President Trump's) Executive Order," he tweeted.

The Treasury declined comment on the NYSE decision. OFAC, which is responsible for enforcing sanctions, declined comment.

The NYSE is owned by Atlanta-based Intercontinental Exchange Inc (ICE), which is run by billionaire Jeffrey Sprecher, whose wife Kelly Loeffler, also a former ICE executive, is one of two Republican senators facing run-off elections on Tuesday in Georgia. Loeffler is a staunch Trump supporter.

NEW GUARD

The flip-flopping at the Big Board also sowed confusion among investors.

Tariq Dennison, managing director at GFM Asset Management in Hong Kong, said he had almost completely unwound his positions in China Mobile shares in both Hong Kong and New York, partly in anticipation of needing to find investments for U.S. clients with less exposure to risks associated with the investment ban.

The are also questions about how the order will be handled by President-elect Joe Biden who is set to take office on Jan. 20 and could revoke it easily. His transition team has not commented on plans for the directive.

William Kirby, a Harvard Business School professor focused on China, said on Monday that whereas the Trump administration has taken a "one-size-fits-all" approach to its regulation of Chinese companies, the Biden administration would likely have company-by-company reviews.

Miller said that while the last year had seen toughening policies on investment flows into Chinese companies, "many of these rules are likely to fall by the wayside."

FLIP-FLOP

The executive order banning U.S. investors from buying shares of companies Washington alleges are owned or controlled by the Chinese military technically takes effect on Jan. 11 but does not ban purchases until November 2021.

While the directive stops short of forcing a delisting, a separate bill signed into law by Trump in November will kick Chinese companies off U.S. bourses if they do not fully comply with the country's auditing rules in three years.

S&P Dow Jones Indices said on Wednesday it would no longer remove the three firms' ADRs, which had been due to be deleted before Jan.7, from its benchmarks after the NYSE's latest decision.

Other index makers including FTSE Russell and MSCI Inc have cut a dozen Chinese companies on the list from their benchmarks, but have not removed the three telecom firms, all of which have major passive U.S. funds amongst their top shareholders.

The three telecom firms said in statements that they had taken note of the NYSE's latest announcement and would release information in accordance with regulations, adding that investors should pay attention to investment risks.

Chinese foreign ministry spokeswoman Hua Chunying told a regular briefing on Wednesday that some political forces in the United States were continuing with an unreasonable suppression of U.S.-listed foreign firms, which she said highlighted the arbitrary nature of its policies.

"We hope the U.S. respects the legal system and the market," she said.

(Corrects paragraph 18 to clarify the sanctions' timing)

(Reporting by John McCrank in New York, Alexandra Alper in Washington, and Pei Li in Hong Kong; Additional reporting by Tom Westbrook, Clare Jim, Yew Lun Tian, Se Young Lee, Ross Kerber, David Lawder, Bhargav Acharya, Kaniska Singh and Gabriel Crossley; Editing by Megan Davies, Andrea Ricci and Edwina Gibbs)