How would you deal with a client who tries to interfere and micro-manage a project you are assigned on?

A client would micro-manage a project because of previous experiences.
He simply lost the trust of the service providers.
In IT enterprise applications complex projects (e.g.
Financial Systems), you cannot fully trust a service provider because there are so many areas a service provider may fail in.
The client who monitor only the "overall progress" of the project is taking massive risk.
In enterprise applications, I have seen projects that announced delivered by the service provider only to notice that the application don't work properly, unreliable, wrong results, wrong design.
The client has to re-implement the whole project again because the issue are very deep into the system.
The client will not micro-manage a project only if the project is simple or good past experience with the provider.
You need to build a trustful relationship, best built through successful projects.
 

I agree with Dean Waters and Ali Al-Alwan point of view, it's very true that the phrasing of this question would be seen somehow negative, however, as a project manager, you need to have the flexibility to manage the project resources, budget and schedule in the best way to achieve the outcome, some clients may have experienced some delivery shortages in the past, some will need to present to their superiors, but faults of the past do not explain mirco-managing while the project is underway, I would identify this as a mutual fault between the organisation and that vendor, and probably the organisation would have needed to secure better governance in tracking project constraints and delivery from the initiation of the project (it can be even mentioned in RFP, it is the organisation right after all to know the progress and challenge it) The best way to improve governance is by having a conversation between the organisation representative and their partner vendor for changes needed in project governance and reporting (a project manager would not mind reporting on a daily basis, or to add check points, milestones, and sign-offs to assure being delivered the way the customer needs it), but the additional activities may affect schedule and budget, and may require a change request from what was planned originally (especially if there is a hierarchal structure in the approval process), in which the customer needs to review and approve.
 Customer has a very essential role of approval, therefore, rather than redoing the project manager tasks, the customer can focus on the deliverables, and doing more quality checks and reporting deficiencies.
Additionally, it is well known that an organisation has the right to accept or reject a resource with a reason, as (s)he may not be fit with the company requirements, or may not have the seniority per the agreement and contract, but they do not have the right to ask for specific people to stay for longer periods or be paid better than other, as this may violate the vendor rules and regulations, may be seen as discrimination against the other resources, and will be questioned ( (s)he might be doing extras out of scope -gold plating-, or there are certain relationships occuring).

Diplomacy, then diplomatically define the scope of the project and the level of access the key client has.

It guess is mostly about trust, and the truth that client is not familiar with our management methodology.
Just  make sure he does understand how you collect and record data from filed and how these data flow to the summary level of management reports.
They just need to make sure that our single page management reports are well supported by field data.

Some of the backgrounds for micromanaging and interference can be past experiences that did not go well for him/her, trust issues or because of different learning styles so there is miscommunication.
 First I would find out how the person likes to get the information to be more relaxed and if that does not work, have an honest talk to find out where it comes from, if it is past experience then you need to find out he/she would like you to make and report your progress.
Communication is the ownership of the sender, that means you need to ensure that other have understood you in their learning style.
This is to make it situational to the person and the current event.
Kind regards 

client intervention must be to the extent permitted by contract

The first question to ask is why would a client be doing this? You will only answer that question by listening, and developing a environment of trust through communication and interaction.
Perhaps your client is correct in his actions?! He will no doubt have a superior to answer to and many responsibilities of his own to look out for.
Be effective partners and there will be no confrontation and he will not 'interfere'. 
I would also add that to assume your client is 'interfering' is a very negative view to take.

Gaining the trust of the customer is the key. 
Once you establish that, i don't think he would want to micro manage.

Politely convey that we have had very fruitfull sessions with you and it is now our turn to work hard and make further progress.
We will come back to you when some further work had been carried out.
Then as you meet him next time discuss the work carried out so far and defend it with logic and reason.
At the end you loose nothing if the project is delayed you have a solid reason for asking extension. 

It all depends on your interpersonal skills.
How would I handle such a client? I would be very diplomatic and try to balance things such that the client can trust that we're in control.
The first step is winning their trust back; if they start wanting to micro-manage it means trust has been lost somewhere.
If you know where it was lost, for example, if a previous project didn't go very well; you would make up for it by letting them take a lead for a while and slowly letting them know you're in control.
They would then stop micro-managing and would leave things to you, whose responsible for making sure things go well.

If the interferances are suitable for project target & will effect ( efficincy , quality , cost ..
) then you should appreciate it , If the interferances will not be suitable , you should refuse it with explination why in a doplmatic way , So you can have client trust .