Children should not be restricted by their gender when dressing up and boys should be allowed to experiment with heels and tiaras and girls with more male outfits such as a fireman's helmet if they want, says the 'Valuing All God's Children' report.
"Pupils need to be able to play with the many cloaks of identity (sometimes quite literally with the dressing-up box). Children should be at liberty to explore the possibilities of who they might be without judgement or derision," it reads.
"For example, a child may choose the tutu, princess' tiara and heels and/or the fireman's helmet, toolbelt and superhero cloak without expectation or comment," it notes.
The report, which covers nearly 4,700 schools under its remit, said that the aim of the guidance was to prevent pupils in Church of England schools and academies from having their self-worth diminished or their ability to achieve impeded by being bullied because of their "perceived or actual sexual orientation or gender identity".
The Church of England had first introduced such anti- homophobic guidance in 2014, which has now been updated to cover other forms of discrimination against bisexuals and transsexuals.
The head of the church, Archbishop of Canterbury Justin Welby, warns that homophobic, bi-phobic and transphobic bullying causes profound damage, leading to higher levels of mental health disorders, self-harm, depression and suicide.
"Central to Christian theology is the truth that every single one of us is made in the image of God," he says in his foreword to the guidance.
The document acknowledges that members of Anglican churches hold a wide range of views on sexuality and gender issues, and agrees that the topic is "sensitive".
But it adds: "Children should be afforded freedom from the expectation of permanence. They are in a 'trying on' stage of life, and not yet adult and so no labels need to be fixed.
This should inform the language teachers use when they comment, praise or give instructions.
"It may be best to avoid labels and assumptions which deem children's behaviour irregular, abnormal or problematic just because it does not conform to gender stereotypes or today's play preferences."
Charities and gay rights groups welcomed the document, saying it would go a long way in combating bullying on the school playground.
"Our research shows that nearly half of lesbian, gay, bi and trans pupils are bullied for being LGBT (lesbian, gay, bisexual and trans) at school: a situation that desperately needs to change," said a spokesperson for LGBT rights group Stonewall.
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