The government has been dealt a legal setback in its bid to overturn the acquittal of former media tycoon Jimmy Lai and six former lawmakers for allegedly organising an unauthorised mass rally in 2019.

At the same time, the Court of Appeal cleared the way for the seven to challenge their convictions for taking part in the procession at Hong Kong's top court.

Lai, along with Lee Cheuk-yan, Leung Kwok-hung, Cyd Ho, Albert Ho, Margaret Ng and Martin Lee, were originally convicted of both taking part in and organising a rally in August 2019.

The Court of Appeal later cleared the seven of organising the procession, but upheld their convictions and sentences for taking part in it.

The Department of Justice then sought to bring the case to the Court of Final Appeal, arguing the top court should rule on the meaning of "organising" an unauthorised assembly.

But on Friday, a three-judge appeals court panel stood by the previous ruling and said there are no pressing points of law to be clarified by the top court.

Despite the decision, the department could still apply for an appeal directly at the Court of Final Appeal.

On the other hand, the appeals court sided with the seven in their bid to challenge their convictions and sentences over taking part in the unauthorised rally.

They had argued, among other things, that their convictions were disproportionate given that the procession was ultimately peaceful.

The appellate court said the issue of proportionality might be "a question of great and general importance", and cleared the seven to bring the case to the top court.

The Court of Final Appeal would ultimately decide whether to hear the case.

Two years ago, the seven were given suspended jail sentences or prison terms of up to 18 months over the unauthorised procession, which was held after an approved demonstration organised by the now-disbanded Civil Human Rights Front at Victoria Park on August 18, 2019.

They have served out their sentences.