Schools and universities must let transgender students use toilets and locker rooms "consistent with their gender identity" or risk losing federal money, the US government said Friday.

The "guidance," which applies to public schools and most universities that receive money from federal programmes, was issued jointly by the US Justice and Education Departments to "ensure that all students, including transgender students, can attend school in an environment free from discrimination based on sex."

The Justice Department is in a legal standoff with the southern state of North Carolina over a new law there that requires people to use the toilets assigned for their birth sex, regardless of their gender identity.

The government cites 1972 legislation that forbids federal money for schools that discriminate based on sex. The Obama administration says the ban on sex discrimination extends to transgender status.

The announcement drew immediate criticism from conservatives.

Texas Attorney General Ken Paxton, a member of the opposition Republican Party, said the Democratic President Barack Obama's government "overstepped its constitutional bounds to meddle in the affairs of state and local government."

"Today's announcement seeking to unilaterally redefine and expand federal law must be challenged," he said. "If President Obama thinks he can bully Texas schools into allowing men to have open access to girls in bathrooms, he better prepare for yet another legal fight."

The guidance sent to schools "makes clear that both federal agencies treat a student's gender identity as the student's sex for purposes of enforcing" federal law, the departments said.

"Every child deserves to attend school in a safe, supportive environment that allows them to thrive and grow," said Vanita Gupta, chief of the Justice Department's Civil Rights Division.

At the White House, Obama spokesman Josh Earnest said the federal guidelines provide "advice for how school administrators can protect the dignity and safety of every student." He said that "the vast majority of schools ... across the country will welcome this guidance and will implement it."

The widening argument in the United States over public toilets and gender identity has drawn worldwide attention.

The European Union said that the recent North Carolina law and similar measures in Mississippi and Tennessee "discriminate against lesbian, gay, bisexual, transgender and intersex persons" in violation of the International Covenant on Civil and Political Rights, to which the United States is a party.

"Cultural, traditional or religious values cannot be invoked to justify any form of discrimination, including discrimination against LGBTI persons," an EU spokesperson said Thursday in Brussels. "These laws should be reconsidered as soon as possible."

LGBTI is an acronym for lesbian, gay, bisexual, transgender and intersex.

North Carolina Governor Pat McCrory called for the federal courts and Congress to "intercede to stop this massive ... overreach," arguing that the executive branch under the constitutional principle of federalism is not "the final arbiter."

"This national bathroom, locker room and shower policy for almost every business, university and now K-12 school in our country changes generations of gender etiquette and privacy norms, which parents, children and employees have expected in the most personal and private settings of their everyday lives," McCrory said.

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