Giggle for Girls app founder Sall Grover appealed a 2024 finding that they discriminated against Roxanne Tickle by blocking her from using the app and refusing to reinstate her.
Ms Grover and Giggle argued the decision to exclude Ms Tickle was exempt from being classed as discrimination because the app aimed to achieve "substantial equality" and create a safe space for women.
On Friday, the Federal Court upheld its decision the exemption did not apply, meaning similar arguments made in defence of single-sex spaces would likely also fail.
As anti-discrimination advocates celebrated the decision, federal Opposition Leader Angus Taylor called for amendments to the Sex Discrimination Act to "ensure women and girls have protections based on biological sex".
"We are not removing a single protection from anyone," he said in a social media post.
"But we are recognising something that should never have been in doubt: biological sex is real, it matters, and women and girls deserve spaces where it is respected."
Mr Taylor committed to the legislative changes if the coalition wins government, with his sentiments echoed by Nationals leader Matt Canavan.
One Nation leader Pauline Hanson was also sharply critical of the decision and pledged to back Sall Grover in parliament.Â
Ms Hanson's right-wing populist party has been climbing in the polls and won the formerly Liberal-held seat of Farrer in a by-election on May 9.
On Friday, the panel of three judges ruled the discrimination levelled against Ms Tickle was not "indirect" as previously found but direct, doubling the damages awarded to her by the court to $20,000.
Under the law, direct discrimination would be treating someone worse than someone else based on their gender identity, as opposed to indirect discrimination, which could result from a rule or condition being imposed.
The court found Giggle and Ms Grover treated Ms Tickle worse than they would a person designated female at birth.
Bond University discrimination and equality law expert Alice Taylor said the ruling essentially prevented organisations having rules denying entry to transgender people.
Dr Taylor said the ruling did not go as far as to say that transgender women were women under the law but did say that a person's gender identity was "broadly and strongly" protected under the Sex Discrimination Act.
She noted exemptions, such as for religious institutions or in a sporting context, could still be available under the act.
The decision meant groups such as Giggle could not rely on exceptions under the act on the basis they were creating equality for cisgender women, for example, Dr Taylor said.
"That can't exclude people who have diverse gender identities, if that gender identity is consistent with woman or man, and that's how they identify and how they are understood by the world."
Ms Tickle was born male but identifies as female, having undergone gender-affirming surgery and hormone treatments and interacting among family, friends and at work as a woman.
Equality Australia legal director Heather Corkhill said Australian law had for decades recognised a person's legal sex was not limited to the sex they were assigned at birth.
"Any other interpretation would deny the reality and existence of trans people," Ms Corkhill said.
"The judgment reinforces that anti-discrimination laws are intended to protect everyone, particularly groups such as trans women who often experienced exclusion and disadvantage."
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