The Federal Constitutional Court ruled in the case of a person who had applied to have their entry in the birth register changed from "female" to "inter/diverse" or "diverse." Officials rejected it on the grounds that the law only allows for children to be registered as male or female, or for the gender to be left blank.
The plaintiff, whose name wasn't released, argued that was a violation of their personal rights.
The court found the law protects sexual identity, which has a "key position" in how individuals perceive themselves and are perceived by others.
It said that "the sexual identity of those people who can be assigned neither to the male nor the female sex is also protected," and said the constitution also protects them against discrimination because of their gender.
The minister for families in Chancellor Angela Merkel's outgoing government, Katarina Barley, said a third gender option was "overdue."
Interior Ministry spokesman Johannes Dimroth said the government is studying the verdict and will abide by the court's December 2018 deadline.
