WASHINGTON (AFP) - Transgender personnel will no longer be barred from serving openly in the US military, the Pentagon announced on Thursday (June 30) - a major milestone that immediately drew fire from Republican lawmakers.

Lifting the ban on transgender service members is "the right thing to do, and it's another step in ensuring that we continue to recruit and retain the most qualified people," Defence Secretary Ashton Carter told reporters.

"Good people are the key to the best military in the world."

The move is the latest in a series of Pentagon personnel reforms under Carter, who has repeatedly stressed the need for the military to modernise to draw from as deep a talent pool as possible.

He last year ordered all military roles - including combat positions - to be opened to women, and has overseen benefits changes to make the military more family friendly.

As recently as five years ago, the US military still banned gay troops from openly discussing their sexuality under a "Don't Ask, Don't Tell" policy.

Today, the Army has an openly gay man, Eric Fanning, working as the service's highest civilian leader.

The new transgender policy will be phased in during a one-year period, but the military can no longer discharge or deny reenlistment to troops based solely on their gender identity, effective immediately.

By July 1 next year, the services will begin allowing transgender personnel to sign up, assuming they have met the necessary physical and mental standards to do so, the Pentagon said.

Under the new policy, the Pentagon will cover medical expenses related to being transgender, including gender reassignment surgeries when these are deemed "medically necessary."

Republican Congressman Mac Thornberry, who chairs the House Armed Services Committee, said the move could lead to troops not being ready to deploy for medical reasons.

"This is the latest example of the Pentagon and the president prioritizing politics over policy," Thornberry said.

"Our military readiness - and hence, our national security - is dependent on our troops being medically ready and deployable."

Republican Senator Jim Inhofe, who sits on the Senate Armed Services Committee, said the move was a distraction.

"Our military is facing historic readiness shortfalls, putting our service members' lives at greater risk. Addressing this crisis should be the sole focus of the Obama administration, but instead they continue to be more interested in forcing their social agenda," Inhofe said.

The US military has about 1.3 million service members. According to a Rand study, about 2,500 of these active-duty service members are transgender, as well as about 1,500 out of approximately 825,000 reserve troops.

The new policy allows transgender troops "to continue to serve without living a lie, and provides much-needed clarity to commanders who for years have been stuck in the middle of a confusing policy," Democratic Senator Dick Durbin said.

The military will start paying for transgender-related medical treatment no later than Oct 1. Officials said the overall costs are negligible.

At least 18 countries already allow transgender personnel to serve openly in their militaries, Carter said, including Britain, Israel and Australia.