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We introduce a 3D compact U(1) lattice gauge theory having nonlocal interactions in the temporal direction, and study its phase structure. The model is relevant for the compact QED and strongly correlated electron systems like the t-J model of cuprates. For a power-law decaying long-range interaction, which simulates the effect of gapless matter fields, a second-order phase transition takes place separating the confinement and deconfinement phases. For an exponentially decaying interaction simulating matter fields with gaps, the system exhibits no signals of a second-order transition.

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