Reapplying for a PhD with a Master's degree I am a senior undergrad studying internationally and majoring in electronics. I applied to graduate physics programs in the US. I was able to get into some schools, but not the top ones. I have accepted the offer from University of Minnesota for the PhD along with a Master's. 

However, I got a few great positions in the upcoming summer and a couple of papers which seem to be completely deal breaking. I also have a feeling that my undergrad major might have been a problem so getting a master's could be helpful.

I wanted to reapply for grad school with my Master's (along with good GPA). There is a lot of negativity in academia about transfer students. However, I want to make it absolutely clear that I am not talking about transfer student. I want to reapply as a first-year graduate student. And, I am also not bothered by getting recommendation letters from UMN. I can get sufficient letters from other professors. 

I contacted a few schools asking about it. They said I can obviously reapply as a first-year graduate student (that's what I want). But many people (on the internet) say that it is something that is highly frowned upon, and this decreases the chances of admission (even with Masters). I want to get some perspective as to what extent is it common, and how much is it frowned upon?
Since you, in part, ask how much this type of thing is frowned upon, I can provide a data point (or at least an anecdote). For the purposes of this question/answer I am going to pretend there is an absolute ranking of all U.S. PhD programs in my area (since you are concerned about moving to a "top" school).

The first PhD program I entered was one that does not even appear on the listed of schools that I typically see ranked by various reports. So let's say for my absolute ranking of grad schools that my first program was ranked not even in the top 100.

After a year (or 1.5 years) in this first program, I decided I did not want to get my PhD from there, so I applied to other schools. In the statement that I gave my advisor to help him write me a letter of recommendation, I included 2 reasons that I wanted to leave, which were basically the following


The program I was in did not match my interests. Basically the department was more applied-oriented (almost exclusively so) than I wanted to be.
I basically said that I wasn't a great undergraduate and that now that I had some successful grad courses under my belt, I wanted to re-apply to grad school and get to a better school.


After reading this statement, my advisor said almost verbatim, 

"Please tell me you have not shown this to anyone else. You can't show this to anyone else without removing [item 2. from above]."

The major moral here is that there are reasons for switching PhD programs that will be perceived as legitimate, but prestige may not be one of them. I came from a liberal arts background with not much knowledge of the different types of research, and learned after a year in grad school that I was not in a location that would support my research interests. This is perfectly reasonable (in my opinion), and it was also plausible, given the department I was in.

I don't know anything about your field, but I imagine that if you enter a rather top-notch* program like Minnesota and then want to go to a different school to somehow start your actual PhD, I think you will cartainly have to explain your reasons for switching.

You want to go to the higher-ranked school for prestige? Probably this reason will not be well received.

You couldn't find a match for any of your research interests in Minnesota's department? Well, Minnesota is a great department that many tenure-track seeking new PhD's would love to work in. If you can't be a successful researcher there, what kind of researcher are you?

Of course I'm inventing the answers to these questions, and there are many reason's one might switch grad schools. But the point is that you should have a good (by some measure) reason for switching grad programs. If such a reason exists, I think there is nothing negative about changing programs, and I doubt getting into your second program will be more difficult with your Minnesota Masters degree.

*I'm assuming this department is perceived as top-notch based only on jakebeal's comment to the question.