THE military is currently considering paying about $10,000 of a sex change operation for a soldier.
A psychological and medical assessment is being done to find whether military funds can be used as the male officer has a medically diagnosed gender identification issue.
The case follows a complaint by a trans-gender member over moves to discharge him.
The case follows an order by Defence Chief Angus Houston to review the ADF's transgender policies after a transgender member launched a complaint with the Australian Human Rights Commission over moves to discharge him.
The ADF has previously funded up to a dozen breast augmentation and reduction operations in recent years in which female sailors received funding assistance to address "psychological" issues about breast size and confidence.
A sex change operation, from male to female, can cost up to $30,000 but a female to male operation costs significantly more.
Part of those costs are covered by Medicare, which the ADF steps in to pay if the operation is assessed as necessary for the health and deployability of personnel.
It is understood the soldier is now undergoing hormone injection treatment as preparation for surgery later this year and will be recognised by the ADF as a woman upon returning to work.
In September, Air Chief Marshal Houston issued a directive to commanders to "manage ADF transgender personnel with fairness, respect and dignity, existing medical review provisions; and ensure all personnel are not subject to unacceptable behavior".
Australia Defence Association executive director Neil James said despite the current debate about material support for deployed troops - from boots to bullets - the cost of meeting a transgender operation should "not be cause for public outcry".
"Things like this are so rare in the military, people shouldn't be tied up in knots," Mr James said.
He said Medicare part-funded such operations in the general community where there was a valid medical reason and so it should in the ADF.
An ADF spokesman yesterday would not comment on details but confirmed the sex change surgery was being assessed.
"At this stage, surgery for gender reassignment has not been funded," the spokesman said.
"Treatment for gender disorders involves a variety of clinical investigations and early treatment prior to surgical intervention.
"Approval for medical treatment is given based on a case by case basis and defence operational needs.
"Defence personnel are provided with health care specific to their individual circumstances and the clinical need of the particular medical condition.
"The cost of the medical procedures associated with gender reassignment/realignment will differ depending on the circumstances of the case, the procedures that are being undertaken, and the individuals medical needs.
"Current Defence health policy states that equity with Medicare underpins the basic entitlement to the range of medical services provided to members of the Australian Defence Force."