Australian passports will now have three gender options - male, female and indeterminate - under new guidelines to remove discrimination against transgender and intersex people, the government said on Thursday.

Intersex people, who are biologically not entirely male or female, will be able to list their gender on passports as "X".

Transgender people, whose perception of their own sex is at odds with their biology, will be able to pick whether they are male or female if their choice is supported by a doctor's statement. Transgender people cannot pick "X".

Previously, gender was a choice of only male or female, and people were not allowed to change their gender on their passport without having had a sex-change operation. The United States dropped the surgery prerequisite for transgender people's passports last year.

Any country that complies with the International Civil Aviation Organization's specifications for machine-readable passports can choose to introduce a gender "X".

Australian Senator Louise Pratt, whose partner was born female and is now identified as a man, said the reform was a major improvement for travelers who face questioning and detention at airports because their appearance does not match their gender status.

"'X' is really quite important because there are people who are indeed genetically ambiguous and were probably arbitrarily assigned as one sex or the other at birth," Pratt said. "It's a really important recognition of people's human rights that if they choose to have their sex as 'indeterminate', that they can."

Foreign Minister Kevin Rudd said the new guidelines removed discrimination on the grounds of gender identity and sexual orientation.

"This amendment makes life easier and significantly reduces the administrative burden for sex and gender diverse people who want a passport that reflects their gender and physical appearance," Rudd said in a statement.

Attorney-General Robert McClelland said while the change would affect few Australians, it was important because it would allow them to travel free of discrimination.

Peter Hyndal, who negotiated with the government on the reforms on behalf of the human rights advocacy group A Gender Agenda, said the new guidelines were in line with more flexible approaches to gender issues in passports issued by the US and the United Kingdom.

"It's amazingly positive," Hyndal said. "It's the biggest single piece of law reform related to transgender and intersex issues at a commonwealth level ever in this country - mind-blowing."

As many as 4 percent of people are affected by an intersex condition, but most never become aware of their minor chromosome abnormalities.