The Obama administration will tell every US public school district on Friday to allow transgender students to use the bathrooms that match their gender identity.

The letter, signed by officials from the Education and Justice departments, does not have the force of law but contains an implicit threat that schools which do not abide by the Obama administration's interpretation of the law could face lawsuits or a loss of federal aid.

"There is no room in our schools for discrimination of any kind, including discrimination against transgender students on the basis of their sex," US Attorney General Loretta Lynch said in a statement.

"This guidance gives administrators, teachers, and parents the tools they need to protect transgender students from peer harassment and to identify and address unjust school policies," she said.

The move comes as the Obama administration and North Carolina battle in federal court over a state law passed in March that limits public bathroom access for transgender people.

By passing the law, North Carolina became the first state in the country to ban people from using multiple occupancy restrooms or changing rooms in public buildings and schools that do not match the sex on their birth certificate.

"No student should ever have to go through the experience of feeling unwelcome at school or on a college campus," Education Secretary John King said in a statement.

The Obama administration letter will say schools may not require transgender students to have a medical diagnosis, undergo any medical treatment, or produce a birth certificate or other document before treating them according to their gender identity.

Americans are divided over which public restrooms should be used by transgender people, according to a Reuters/Ipsos poll, with 44 per cent saying people should use them according to their biological sex and 39 per cent saying they should be used according to the gender with which they identify.

White House spokesman Josh Earnest told reporters that the administration would not take action to withhold federal funding while the matter played out in courts, a stance applauded by the state's governor and a top Republican lawmaker.

"Today the Obama administration admitted what we have said all along – that their threat to withhold funding and bully North Carolinians into accepting their radical argument that men have a 'civil right' to use women's bathrooms and shower facilities would have to be settled in court," state Senate Leader Phil Berger said.