The Government backed oil giant BP, which is challenging its ban on contracts in the US, after its chaotic mishandling of the Gulf of Mexico oil disaster.
In a filing to a court considering BP's attempt to lift the ban, the UK government said the decision by the Environmental Protection Agency to ban the firm from US government contracts "may have been excessive".
Explaining the move, a Downing Street official told the Financial Times the firm was "vital to British jobs and pension funds".
The 2010 blow-out of the Deepwater Horizon well, off the Louisiana coast, claimed 11 lives and destroying fishing and tourism in the area as well as marine and wildlife habitats, forcing the company to sign a multi-billion compensation deal in April 2012.
As well as costing the firm £25.9 billion, BP was hit by the ban on new US government work in November last year because of the way it handled the rig disaster.
The Downing Street official told the newspaper: "This is a straightforward economic argument. BP is vital to British jobs and pension funds: Britain's businesses need certainty to operate and invest."
The source said the Government recognised the seriousness of the Gulf of Mexico oil spill, "but it is important that where companies take responsibility, as BP has, they are treated fairly under the law".
In August BP sued the US government over the EPA's move, calling on the US District Court for the southern district of Texas to declare the decision null, void and unenforceable.
The Financial Times reported that the Government has filed an "amicus brief", meaning it is not a party to the case but is showing support for BP, telling the court the EPA's move "may have been excessive", especially the decision to suspend multiple BP entities including some that were not implicated in the accident.
"By creating a process under which any corporate affiliate anywhere in the world can be suspended from transacting business with the government regardless of culpability, EPA risks creating a powerful disincentive to co-operation in times of crisis," it said.