Free Kick Question

[MN BB Ref]

Hi all,

I was working as the U in a 10th grade game last night and I had the following scenario occur during a free kick. Neither myself, the HL, or the Ref was able to quote a rule that made this play illegal, but we all had doubts as to its legality.

K1 sets the ball up on the tee and receives the ready signal from the referee. As the K1 approaches the ball he suddenly stops, picks up the ball and readjusts it for an on-side kick while his teammates all shift. After this K1 then performs an on-side kick.

I guess my question is, is it legal for a member of K to touch the ball after the referee has given the ready signal?

Thanks and I look forward to your comments and hopefully a rule listing.