Adds context, details of order in paragraphs 2, 4-8

By Aditya Kalra

NEW DELHI, July 23 (Reuters) - India's government on Thursday eased foreign investment rules to allow e-commerce companies to buy products directly from Indian sellers and then sell them to overseas customers, a major win for Amazon AMZN.O which lobbied for the change for months.

The policy restrictions that Amazon and Walmart face have for years been a sore point between New Delhi and Washington, and the relaxation for exports comes just when India and the United States are struggling to sign a trade agreement despite assurances from both sides that negotiations are nearly complete.

With an aim to protect its brick-and-mortar retailers, India has prohibited the foreign e-commerce companies from selling goods directly to consumers at home or abroad, allowing them only to operate a marketplace to connect buyers and sellers for a fee. The rule has now been relaxed to boost exports, the government said in a statement.

The Indian government was taking the decision to "facilitate greater exports through easier and increased access of global markets," it said in a statement.

Amazon and Walmart's e-commerce company in India, Flipkart, did not respond to Reuters queries.

The relaxation comes despite industry groups backing small retailers opposing any easing of restrictions for the U.S. companies in closed-door meetings held with the government last year .

The Confederation of All India Traders, which represents millions of brick-and-mortar retailers, has argued the change could be abused by foreign companies and give them more control over supply chains.

In 2024, the Indian antitrust watchdog's investigation found that Amazon breached competition laws by engaging in deep discounting and working with its preferred sellers, allegations Amazon denies.