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Kuwait's constitutional court has overturned a law that criminalised "imitation of the opposite sex" and was used to prosecute transgender people.
The Gulf state's parliament amended Article 198 of the penal code in 2007 to make the offence punishable by up to one year in prison and a fine.
But Wednesday's court ruling said the amendment violated the constitution.
Amnesty International called the development "a major breakthrough for transgender rights in the region".
Lynn Maalouf, the human rights group's deputy Middle East director, said the law was "deeply discriminatory, overly vague and never should have been accepted into law in the first place".
"The Kuwaiti authorities must now ensure that Article 198 is repealed in its entirety," she added. "They must also immediately halt arbitrary arrests of transgender people and drop all charges and convictions brought against them under this transphobic law."
She called for the immediate release of Maha al-Mutairi, a 40-year-old transgender woman who was jailed and fined under the law.
Her lawyer, Ibtissam al-Enezi, told Human Rights Watch at the time that the court had used her social media videos as evidence to convict her on the grounds that she was wearing make-up, speaking about her transgender identity, allegedly making "sexual advances", and criticising the government.
In June 2020, Ms Mutairi was summoned by authorities after she posted videos on Snapchat accusing police officers of raping and beating her during a seven-month period of detention in a men's prison in 2019.
Ms Mutairi's case sparked an international outcry and prompted Kuwaiti lawyer Ali al-Aryan to file a lawsuit requesting that the amendment to Article 198 be repealed.
Kuwait's penal code still criminalises sexual relations outside marriage, and punishes consensual same-sex relations between men by up to seven years in prison.
One other Gulf state, Oman, has a law that expressly forbids expression of transgender identities.
Saudi Arabia has no written laws concerning gender identity, but principles of Islamic law are used to harass transgender and gender diverse people, according to London-based rights group the Human Dignity Trust.
And under the penal codes of the United Arab Emirates, Jordan and Lebanon, a man who "disguises" himself as a women in order to enter a women-only space is guilty of an offence.