The Otago Rugby Football Union had originally overturned a ruling from the Otago Country Board that turned down the transfers.
But protests from other Central Otago clubs forced the ORFU to revisit the issue and it sought a legal opinion from the New Zealand Rugby Football Union.
The Arrowtown club sought reinforcements after 12 players in its original squad of 28 had been injured. It asked the Otago Country Board to approve the transfers of Aaron Kimura and Drew Carmody, to allow both to play in the semifinal against Alexandra.
The board declined the transfers because the application did not meet the deadline of two weeks before the semifinals.
The ORFU's amateur rugby manager Justin Gardner said that the Otago union had revisited its original decision to allow both players to transfer to the Arrowtown club and play in the semifinal and final.
Carmody, a centre and a former member of the Taieri club in Dunedin, is allowed to play but Kimura has been ruled out.
Carmody has set up a tourist business at Arrowtown and Kimura had been offered a job in the town.
"We were happy about the information given us about Carmody but the data on Kimura was misleading," Gardner said.
Kimura has played first-class rugby in the midfield for Southland and Nelson Bays and professional rugby in Italy.
Both Upper Clutha and Arrowtown applied for transfers but these requests were turned down by the Otago Country Board. Upper Clutha accepted the decision.
Arrowtown appealed to the ORFU and it overturned the decision and originally permitted the club to use its two transfer players. This decision upset Upper Clutha coach Brendan Quirke.
"We feel it made a complete mockery of the country board decision and has gone way over the line of fair play," he said.
"Up until now it has been a very good season and played in a good spirit."
Arrowtown won the round-robin competition with 49 points and was followed by Wakatipu 45, Upper Clutha 44 and Alexandra 42. The draw for today's semifinals is Arrowtown v Alexandra and Upper Clutha v Wakatipu.
A depleted Arrowtown team has lost three of its last four games.
The chairman of the Arrowtown club Simon Spark said his club was left with just 17 fit players for the semifinal.
"Twelve players from our original squad of 28 have been injured," he said.
"We didn't want to default and felt we had a just cause.
"The Otago Rugby Football Union recognised the difficulties and did not want to prevent our team playing."
Otago Country Board member Wayne Soper was upset that the Otago Rugby Football Union had overturned what should have been a local decision.
"Our rules are clear. No transfer in the last two weeks before a semifinal," Soper said.
"A lot of other clubs are in a similar position to Arrowtown and are short of players."
He acknowledged that the Otago Country Board rules allowed for an appeal to the Otago Rugby Football Union.
"But I'm not happy about people sitting in Dunedin making a decision that affects Otago Central domestic rugby," he said.
Other clubs have backed the stand taken by the Upper Clutha Club and the country board.
The assistant coach of the Wakatipu team, Clark Frew, said the Arrowtown club was attempting to flout the transfer laws.
"It sets a nasty precedent for the future," Frew said.
"I'm a firm believer in following the rules and I expect all clubs to abide by them."
Alexandra coach Lindsay Breen was not happy with the decision.
"I don't think it is in accord with our rules," he said.
"But the Otago Rugby Football Union has made the decision and we will just have to live with it."
