Hindu-majority Nepal said on Friday that it will start issuing identification cards with three categories for genders, a move hailed by gay activists, who said previous regulations had been discriminatory.
Up until now, the government has issued the cards only to people who identified themselves as either male or female.
People identified as transgender said they could not apply for jobs, set up businesses or seek education without the cards, and that forcing them to choose one specific gender was discrimination.
We have changed the format, which will now include male, female and others, said Shankar Koirala, a Home Ministry spokesman.
The move comes four years after the Supreme Court ordered the government to draft new laws or change old ones that discriminated against gays, lesbians and transgenders.
Sunil Pant, founder of the Blue Diamond Society, a leading gay rights group, said the move was very positive and came after years of struggle.
But Pant, a former member of parliament, said much more remained to be done, with last month's dissolution of parliament slowing change still further.
Now only sons or daughters can inherit property from their parents. Changing this law has been delayed due to the dissolution, Pant said.
Two laws, one concerning the inheritance of parental property and the other recognising same sex marriage, had been under consideration by parliament, which had also been tasked to prepare a constitution that had been expected to include provisions to include marginalised groups such as gays.
Homosexuality remains a largely taboo subject in Nepal, a conservative nation where homosexuals were once arrested or beaten, but it has become increasingly gay friendly since emerging from a decade-long Maoist-led civil war in 2006.
Same sex marriages have taken place in public though such unions still remain unrecognised by law. Pride parades and gay beauty contests have also been held.