Shares of Irish and UK betting companies, which have been pushing into the US market because of tighter regulations, fell after the US Department of Justice called for wider restrictions on all gambling on the internet.
Bookies such as Paddy Power Betfair, William Hill and 888 Holdings fell between 1.5-7% after the US regulator reversed its 2011 opinion that made only sports betting online illegal under the Wire Act.
The 2011 reading of the federal law, which came into effect in 1961, prohibits certain types of gambling in the US including sports betting.
But the regulator now says the provisions under the act must now be considered in tandem with the Unlawful Internet Gambling Enforcement Act.
The opinion by the regulator's Office of Legal Counsel, dated November 2, 2018 but only disclosed last night, added that the new interpretation of the law's scope will likely be contested in courts.
Gambling companies had been pulling off deals to move into the US market after a Supreme court ruling in May took the US a step closer to legal sports betting in numerous states, perhaps nationwide, rather than select states like Nevada - home to gambling capital Las Vegas.
GVC Holdings in July agreed to set up an online betting platform in the US with hotel and casino operator MGM Resorts.
William Hill in September signed a 25-year sports betting deal with casino operator Eldorado Resorts.
And last year Paddy Power Betfair has agreed to combine its US operations with fantasy sports business FanDuel.
Analysts said the implications of the developments may not become clear until the US government returns from a shutdown and perhaps until prosecutions start.