Plans that would require doctors to sign off on pupils changing their gender pronouns in school are set to be blocked.
Ministers are currently working through the new "complex" legislation ahead of the publishing of guidance for schools.
The Telegraph reports that ministers had been considering only allowing pupils to socially transition with parental consent if they have a medical diagnosis.
However, a Government source said that the proposal was blocked by the Department of Health and Social Care (DHSC) because it said there would not be enough doctors to respond to children who are undergoing gender dysphoria.
The first guidance on transgender pupils in English schools is expected to be published for consultation later today.
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The DHSC also said it would be too difficult to agree on what medical threshold would need to be met for a child to socially transition.
It comes as the first guidance on transgender pupils in English schools is expected to be published for consultation later today.
The report is set to announce that schools will have to tell parents if a pupil asks to change their gender pronoun in school.
Teachers and pupils will not be forced to use a child's preferred gender pronoun.
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The DHSC is set to make the announcement
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However, ministers are expected to announce that attempting to ban social transitioning in primary or secondary schools would breach the Equality Act 2010.
Toilets, changing rooms and contact sports are expected to remain separate on the grounds of biological sex.
Teachers will not be banned from allowing transgender children from playing non-contact sports with others of their adopted gender.
Health Secretary Victoria Atkins was said to be "very supportive" of the plans which are set to be announced.
The draft guidance on transgender issues for schools in England was originally set to be published before the summer holidays.
However, it was delayed, with ministers working "carefully" on the guidance.
The Prime Minister’s spokesperson said yesterday: "It’s a complex area, as Scotland has experienced and other countries have experienced. It’s right to take the time to get this right.
"That’s the important thing. Ministers are working on it carefully and we’ll set out the details as soon as possible."