Transgender citizens will now be able to serve openly in the US military without fear of discrimination, defence officials announced Thursday.
The Pentagon said that service members can no longer be discharged or separated from the military solely for being transgender individuals.
"Our mission is to defend this country, and we don't want barriers unrelated to a person's qualification to serve preventing us from recruiting or retaining the soldier, sailor, airman, or Marine who can best accomplish the mission," US Defence Secretary Ashton Carter said.
"We have to have access to 100 per cent of America's population for our all-volunteer force to be able to recruit from among them the most highly qualified and to retain them," he said.
Those currently serving who had previously kept their transgender status private will now be able to serve openly, while new transgender recruits will be able to enlist in the military beginning in one year.
The military will also pay for medical treatment for gender transition services beginning in October.
The move follows a 2011 move to allow homosexual military personnel to serve openly and steps taken earlier this year to open up all combat positions to women.
Transgender issues have risen to the forefront of US political dialogue in recent months after local lawmakers in North Carolina instituted a law that would prevent transgender people from using bathrooms associated with their gender identity.
Republican Congressman Mac Thornberry, the chairman of the House Armed Services Committee, denounced the Pentagon's move as an effort at political correctness.
"This is the latest example of the Pentagon and the president prioritizing politics over policy," he said in a statement, questioning whether the decision will impact troops' ability to deploy quickly.
"The administration seems unwilling or unable to assure the Congress and the American people that transgender individuals will meet these individual readiness requirements at a time when our Armed Forces are deployed around the world."