Children must be allowed to able to identify as transgender or experiment with gender without bullying or criticism, teachers at Church of England have been told.
It also makes clear that whilst there is a range of beliefs on LGBT identities within the church, there "can be no justification" for anti-LGBT bullying based on Christian faith the Bible.
The guidelines say that nursery and primary children in particular are in a phase of "creative exploration" and there should be no assumptions if they pick up roles or clothing normally associated with the opposite sex.
Pupils need to be able to play with the many cloaks of identity (sometimes quite literally with the dressing up box). Children should be at liberty to explore the possibilities of who they might be without judgement or derision. For example, a child may choose the tutu, princess's tiara and heels and/or the fireman's helmet, tool belt and superhero cloak without expectation or comment.
Guidance for Church of England schools on homophobic bullying was first published three years ago, and has now being updated to cover transphobic and biphobic bullying.
Anti-LGBT bullying causes "profound damage", makes children feel unsafe and put their education at risk, the guidance says.
It warns that no child should be bullied because of their perceived or actual sexual orientation or gender identity and schools must work to make sure they offer a welcoming atmosphere to all pupils.
The one million pupils attending CoE schools must be encouraged to "accept difference of all varieties and be supported to accept their own gender identity or sexual orientation and that of others," it instructs.
It also says that "the importance of inclusivity" should be explored as a theme during collective worship within school life.
"Central to Christian theology is the truth that every single one of us is made in the image of God. Every one of us is loved unconditionally by God," said the Archbishop of Canterbury in a foreword to the guidance.
"This guidance helps schools to offer the Christian message of love, joy and the celebration of our humanity without exception or exclusion."
However, it has proved controversial with more Conservative members of the church.
Andrea Minichiello Williams, an evangelical member of the CoE's General Synod, told the Daily Mail the rules were "unkind, unloving and lacking in compassion"
"We are all against bullying, but the Church is using these guidelines to pursue an agenda that runs counter to the Church’s teaching," she added.
But Charity Stonewall praised the new updates, saying nearly half of LGBT pupils are bullied at school and that "desperately needs to change".
"We would like to congratulate the Church for sending a clear signal that homophobic,biphobic and transphobic bullying must never be tolerated," they said.