By Chris Prentice and Hannah Lang

WASHINGTON (Reuters) -The U.S. Securities and Exchange Commission (SEC) on Monday defended its authority to oversee certain cryptocurrency assets in court, as Binance urged a federal judge to dismiss the regulator's case against the world's largest crypto exchange.

Monday's hearing over Binance's request marked the second closely-watched courtroom battle in less than a week that could help define the U.S. securities regulator's jurisdiction over the crypto sector. Last week, Coinbase and the SEC clashed over similar questions.

Binance has asked U.S. Judge Amy Berman Jackson to toss out a lawsuit the SEC filed alleging Binance broke its rules and committed fraud. The lawsuit is one of Binance's last major legal challenges in the U.S. Jackson did not rule from the bench on Monday, saying she would take the issue under advisement.

Binance agreed to pay $4.3 billion in November to settle with the Department of Justice and the Commodity Futures Trading Commission over illicit finance breaches. Its then-CEO Changpeng Zhao pleaded guilty to breaking U.S. anti-money-laundering laws and agreed to step down as CEO, but the SEC's case is still hanging over the exchange.

The SEC has accused Binance, Zhao and the exchange's U.S. arm of artificially inflating its trading volumes, diverting customer funds, failing to restrict U.S. customers from its platform and misleading investors about its market surveillance controls.

The regulator also accused Binance of unlawfully facilitating trading of several crypto tokens the SEC deemed unregistered securities.

Much of the SEC's case hinges on whether crypto assets traded on Binance's trading platform are securities that fall under the SEC's oversight.

"The SEC to this day has been talking out of both sides of its mouth when it comes to crypto tokens," said Matthew Gregory, a lawyer for Binance, at the hearing.

"They're telling the industry (to) come in and register, while simultaneously with their other hand holding the door closed and preventing any viable path to do that."

The Securities Act of 1933 outlined a definition of the term "security," yet many experts rely on a U.S. Supreme Court case to determine if an investment product constitutes a security. A key test is whether people are contracting to invest in a common enterprise with the expectation of profit.

The judge quizzed lawyers for both sides over their differing views on the issue.

Lawyers for the SEC told Jackson the test is designed to be flexible and that there is "no bright line" to make the distinction.