US President Joe Biden will begin to clear a legal path for relatives of victims in September 11, 2001 attacks to pursue $3.5 billion in frozen funds from Afghanistan's central bank, which is currently deposited in New York, the New York Times reported on Friday, citing officials familiar with internal deliberations.

According to the report, Biden will also use emergency powers to consolidate and freeze all $7 billion in assets held by the Afghan central bank, and allow the remaining $3.5 billion funds to be moved to a trust fund for humanitarian relief in Afghanistan via legal pathways.

The Taliban, after taking control in Afghanistan, had claimed a right to the money and had repeatedly sought for the unfreezing of funds deposited in New York. But, according to the newspaper, a group of relatives of victims of the Sept 11 attacks, sought to seize it to pay off that debt.

International funding to Afghanistan was suspended and billions of dollars of the country’s assets abroad, mostly in the US, were frozen after the Taliban took control of the country in mid-August.

The country’s long-troubled economy has been in a tailspin since the Taliban takeover. Most of the Afghanistan’s previous government’s budget came from the international community. That money, now cut off, financed hospitals, schools, factories and government ministries.

Following the takeover, a group of families of about 150 US victims of the September 11 attacks entered the arena, saying they were owed about $7bn in frozen assets held by the Federal Reserve of New York. They were awarded the sum by a federal judge in 2012 following a default judgement against an array of defendants, who never showed up in court.

With the Taliban back in power in Afghanistan, families in the so-called “Havlish case”, named after plaintiff Fiona Havlish, have argued they finally have the ability to enforce the ruling. They subsequently convinced a federal judge to begin the process of seizing the money.

A US marshal served the Federal Reserve of New York with a “writ of execution” in September, in a series of moves, reported The New York Times.

However, the US government intervened in the case, requesting a series of delays so it could give its position on the matter.

Meanwhile, the economy in Afghanistan has been collapsing, leading to a mass starvation that is in turn creating an enormous and destabilising new wave of refugees — and raising a clear need for extensive spending on humanitarian relief.

Against that backdrop, the White House’s National Security Council led months of deliberations on the central bank funds involving top officials from departments including Justice, State and Treasury, according to people who spoke on the condition of anonymity to discuss a sensitive matter that has not yet been made public.

The original deadline for the government’s response – which could offer a window into the Biden administration’s thinking on the legally and diplomatically complex issue – was Friday. But a judge has agreed to grant the administration’s request for an extension, giving the government until February 11 to make its position known.

The report says that Biden has now decided that the government will not object to any court decision to devote half of the money for the Sept. 11 claims. The Justice Department is instead expected to tell the court that victims of the attacks should have a full opportunity to have their claims heard, according to people familiar with the matter.

But if the judge agrees to partly lift the writ of execution, Biden will seek to direct the remainder toward a trust fund to be spent on food and other assistance in Afghanistan — while keeping it out of the hands of the Taliban, according to people briefed on the decision.