"Today we've put an end to a history of social proscription," Vice President Alvaro Garcia yesterday said as he enacted the legislation in place of President Evo Morales, who was visiting Cuba.
Transgender people "are a reality," he said. "It is social hypocrisy to deny their existence."
Bolivia's legislature passed the law on Friday, despite protests from Catholic and Evangelical churches demanding more debate.
The Catholic Church had said it rejected the text because it undermines family and societal "norms." An Evangelical church leader, pastor Sergio Gutierrez, had called for a national referendum on the issue.
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"If the pope says that, who are we to judge and to deny someone who wants to modify their sexual identity?" Garcia asked.
LGBT associations welcomed the law.
"We can see we are in a new state able to integrate each of these people who were vilified and who had no rights," said Tamara Nunez, a representative of a transsexual collective. "Identity is the first fundamental right.