Moderate Liberal MPs are confident their issues with the government's religious discrimination bill can be sorted, as advocates ramp up their calls for the entire bill to be scrapped.
It comes as proposed amendments to the bill would still allow religious schools the right to expel transgender students, with only gay students offered protection from such expulsion.
Protections for LGBT+ students at risk of being expelled from religious schools was a key concern among moderate Liberals examining the legislation, with some threatening to cross the floor when debate resumes in parliament this week.
Liberal MP Jason Falinski told the ABC he was comfortable with the issue of protecting transgender students' rights being sent to the Australian Law Reform Commission, addressing concerns raised in Tuesday morning's coalition party room meeting.
Earlier, Olympic swimming champion Ian Thorpe said the bill amounted to "state-sanctioned discrimination".
"It's being considered that trans is not classified in that category as well ... when you look at some of the most marginalised and disadvantaged people in this country, this is a group of people that we should be protecting," the LGBT+ advocate told reporters in Canberra.
"It becomes state-sanctioned discrimination to gain rights for one group of people, whilst excluding another group of people."
Mr Thorpe was joined by transgender year 12 student Olivia, who said she was subjected to "direct discrimination" from a former school after she came out.
"They told me I was very likely to be bullied by people ... that my twin brother in the same year at the school would also be bullied. They told us that his leadership potential would be jeopardised," she said.
"They said that if I would just leave this term, it would not have to pay the rest of the term's fees. This left me without a school going into the new year and with nowhere to go."
The coalition party room met on Tuesday morning to discuss amendments to the bill, but the meeting was adjourned to allow members to attend speeches acknowledging workplace harassment and bullying in Parliament House.
The meeting is expected to reconvene after Question Time.
Finance Minister Simon Birmingham had earlier on Tuesday confirmed the amendments would not provide protections on the basis of gender identity.
"The proposal that is put forward is to repeal the exemption as it relates to students being exempted from the Sex Discrimination Act on the basis of their sexual orientation. Now it doesn't go further than that," he told ABC Radio.
Prime Minister Scott Morrison told reporters he was honouring an election promise with the bill before parliament, which would not overturn the existing legal ability to expel transgender students.
"This bill does not seek to endorse that arrangement. That's an existing law. What we're dealing with today are not those matters," he said, adding that further work would be done by the Australian Law Reform Commission.
Liberal MP Angie Bell indicated she would now support the bill, having previously said she would not vote with her government colleagues without the amendments.
It comes after Liberal backbencher Bridget Archer said she would cross the floor on the issue should it come to a vote, due to a lack of protections for students.
The proposed bill would shield people expressing their religious beliefs, even if these are considered offensive or insulting, as long as they don't amount to harassment, vilification or threats.
The bill is also designed to override state laws that limit when religious schools can preference hiring people of the same faith.
