Tasmania has become the first Australian state or territory to provide an option to list a baby as having no gender on its birth certificate.
The new legislation will also allow people older than 16 to change their gender on their birth certificate without the consent of their parents. Transgender people won't have to have undergone a sex change in order to change their gender on their certificate as well.
The Greens and Labor have been pushing the bill since last year but have been blocked by the state government.
Premier Will Hodgman said the legislation would require a big change to the Tasmanian legal landscape.
"This legislation has ignored the views of Tasmanians and eminent legal stakeholders who have raised concerns and pointed out that there has been no opportunity to undertake a full review of what is being proposed and how it impacts on other statutes," he said.
"It is highly likely the parliament will need to fix up problems with the legislation."
When a baby is born, the Registrar will still have to list it as either male or female, however parents have the option to omit that detail from the official certificate.
Prime Minister Scott Morrison has previously criticised Labor over gender law reforms.
Writing on Twitter, he said: "A Liberal national government will never remove gender from birth certificates, licenses and passports - who are Labor kidding? Get real.
"This is the problem with Labor, obsessed with nonsense like removing gender from birth certificates rather than lower electricity prices, reducing tax for hard-working families and small businesses."
Tasmania is also leading the charge to protect transgendered people. A bill was put forward by the Labour and Greens and could make it illegal for people not to refer to people by their preferred pronoun.
The Tassie parliament is yet to rule on that bill.
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