Transsexuals are to be allowed to marry in their adopted gender and apply for new birth certificates, under proposals announced by the government on Friday.
Marriages involving transsexuals are not legal in the UK
But in a concession to conservative elements of the Anglican Church, priests will be able to refuse to marry a couple if one of the partners is a transsexual.
Claire McNab, of campaign group Press For Change, said the proposals would end the "legal nightmare" currently faced by transsexuals.
The move would also end Britain's status - alongside Albania, Andorra and the Irish Republic - as one of only four European countries to refuse transsexuals permission to alter their sex on birth certificates.
The draft Gender Recognition Bill was published exactly one year after a landmark ruling by the European Court of Human Rights that current UK law
breached transsexuals' human rights.
Officials expect 300 people a year to apply for new birth certificates, once a current backlog of 5,000 is cleared.
Under the proposals a new body, the Gender Recognition Panel, will be set up to assess applications for new birth certificates.
Transsexuals will have to meet medical criteria, give a sworn oath that they have lived in their new gender for at least a few years and that they intend to
continue until death.
They are not expected to have actually undergone surgery in order to change their sex in cases of gender dysphoria.
Lord Filkin, Minister at the Department for Constitutional Affairs said most people with the condition wanted to undergo surgery, but many could not because of health concerns.
Lord Filkin said "disquiet" in the Church about the proposals led to the concession allowing priests to refuse to marry a couple.
It will be the first time that the right of an Anglican priest to refuse a marriage has been enshrined in law.
Lord Filkin said: "We recognise that some clergy, particularly some Anglican clergy, currently
have a legal obligation to marry anyone who applies to them.
"We are recognising that and giving them the freedom not to do so if they don't want to."
Ms McNab said the proposals were "carefully considered" and would allow transsexual people the same legal status as everyone else in the
She said: "The Bill will benefit only a few thousand people, but it is an important measure to restore the human rights of a vulnerable minority in our society."
Ms McNabb called for the bill to go before Parliament as soon as possible, adding: "We've waited long enough already."