The Victorian Government has announced it will provide the Gender Dysphoria Clinic at the Royal Children's Hospital $6 million over four years.
The announcement comes weeks after speculation funding for the Clinic was left out of the budget.
The funding will help the centre reduce its growing waiting list, which has blown out to a wait 14 months long.
Minister for Equality, Martin Foley, said the Clinic makes a huge difference to the wellbeing of very vulnerable young people and their families.
"This clinic saves lives," he said.
"We know that timely access to multidisciplinary support is crucial for young people approaching puberty and experiencing gender dysphoria, and we're providing this funding to bring down the waiting list."
The Clinic and members of the LGBTI community have welcomed the funding.
"This is incredibly welcome news and will be life-changing for many trans and gender diverse young people and their families," Sally Goldner from Transgender Victoria told MCV.
"We look forward to funding for trans and gender diverse services covering all age groups (and services covering all of LGBTI) being commenced or increased as soon as possible," she added.
Dr Michelle Telfer from the Clinic told Fairfax Media that the money would go towards psychologists, psychiatrists and paediatricians.
It will also pay for medication, including puberty blockers.
"The number of people with gender dysphoria is unchanged. But people are feeling safe to come forward, now that society is increasingly accepting," she said.
"A lot of the young people who would have been suffering in silence have now got an opportunity to improve their lives and be who they are."
Minister for Health, Jill Hennessy said:
"Labor is acting quickly to deliver the extra funding needed to meet the increasing demand for youth gender dysphoria services, now and into the future."
Greens MP for Prahran, Sam Hibbins, has previously lobbied for the government to fund the Clinic, telling MCV it is a much needed funding boost.
"The government must continue to monitor referral rates to the service to ensure trans and gender diverse young people can access these critical services as soon as possible," he said.