The assistant attorney general says its up to the parents of LGBTQ+ children to not send them to schools with traditional religious values.
Amanda Stoker says the federal government is committed to protecting LGBTQ+ children from facing discrimination at schools but it was a "matter for parental choice" to send their kids to such educational institutions.
"The real question is, do you really want to, as a parent, send your trans kid to a school that has very traditional and disclosed upfront beliefs on this subject," she told the ABC.
"It's about parents doing the right thing by their kids and it's important that we maintain a whole range of different options in our education system so that the different needs of all those families can be met."
It comes amid confusion about protections for gay students in the government's religious discrimination bill, with Prime Minister Scott Morrison on Thursday saying it would be accompanied by changes to stop schools discriminating against same-sex attracted and gender-diverse students.
Moderate Liberals have previously said their support for the religious discrimination bill hinges on changes to the Sex Discrimination Act.
Senator Stoker said it was the government's expectation gay childen will enjoy protections before the election but she wasn't going to "sign it in blood".
"The important thing here is that while we want to make sure we're doing the right thing by these kids, we also acknowledge the fact that religious schools are the education choice for thousands of Australian families," she said.
"They have a right to exercise their genuinely held religious beliefs even if it might offend some others."
Two parliamentary legislation and human rights committees are preparing to hand down reports on Friday scrutinising the discrimination bill LGBTQ+ groups want scrapped.
The issue has again come to a head as Brisbane's Citipointe Christian College abandons its for enrolled students.
"I don't support that," the prime minister said of the contract scrapped on Thursday following widespread backlash.
"My kids go to a Christian school here in Sydney and I wouldn't want my school doing that either."
Citipointe earlier circulated a document to parents explaining "the college will only enrol the student on the basis of the gender that corresponds to their biological sex".
It also denounced same-sex attraction as a sin and compared it to bestiality, incest and pedophilia.
In revoking the contracts, principal Brian Mulherin expressed "regret that some students feel that they would be discriminated against because of their sexuality or gender identity".
