The German government on Wednesday approved a draft law allowing a third gender option on birth certificates for babies who are not distinctly male or female.
In a move described by the justice minister as "long overdue," Chancellor Angela Merkel's left-right coalition passed a bill permitting children born intersex to be registered as "diverse."
The measure follows a ruling by Germany's top tribunal last November that current regulations on civil status are discriminatory against intersex people, noting that the sexual identity of an individual is protected as a basic right.
Germany has since 2013 allowed babies born with characteristics of both sexes to leave the gender options of male and female blank.
Intersex is a broad term encompassing people who have sex traits that do not entirely fit with a typical binary notion of male and female.
Justice Minister Katarina Barley, whose office drafted the bill, said the legislation marked a big step forward by requiring a new gender option from birth.
"No one should be discriminated against on the basis of their sexual identity," she said, adding that the new category would give intersex people a greater sense of "dignity and positive identity."
The law also prohibited surgical procedures on intersex babies so they can themselves choose their gender later in life.