I plan to edit my story before I continue it, however I am not sure if there are rules regarding chapters that have been entered in challenges.
If I keep to the rules on the challenge, can I still edit it? Or would I have to retract my entry?
Any advice or help concerning the matter would be most appreciated.

I'm still looking for help regarding this issue.

If you want to edit the chapter or story go for it. Entering the chapter/story as part of a fanfiction challenge is irrelevant. The story is your own work and creation. If you want to change stuff or for example edit for spelling errors etc than it can only be a good thing aka it would likely make the writing more readable.

I post chapters raw for example without spellchecking and proofreading on AO3. I then re-read and edit and upload the edited chapter in place of the raw one.

I also did this on Dokuga too when I used to write for fanfiction challenges.

It's just part and parcel of being an author I suppose.

You do rough drafts and edited drafts.

It's fine.

Note that it won't affect/effect the fanfiction challenge entry at all, so you wouldn't have to remove it from the challenge, unless you were doing like a major theme change. Like a challenge about vampires, and you change the core plot to Sesshy being a leprechaun and Kagome a mushroom. Now that would be a retraction.

~ Pyre

Thank you for your helpful reply