In a series of Twitter posts in July, Trump announced that "the United States Government will not accept or allow Transgender individuals to serve in any capacity in the U.S. Military".
Transgender troops who are in the USA military may remain in the ranks, the White House said late Friday, but the Pentagon could require them to serve according to their gender at birth.
The White House issued the memorandum, which relied on recommendations from Defense Secretary James Mattis, and said that transgender individuals are "disqualified from military service except under limited circumstances".
The argument has come back to light after Donald Trump moved this week to ban certain transgender military members from serving.
The new order follows a Pentagon policy review initiated by July tweets by Trump, in which he suggested that transgender individuals would not be allowed to serve in the USA military "in any capacity".
Now, Trump has announced a revised policy that comes from the Pentagon: Transgender troops will be allowed to serve in the military, but they'll be required to serve according to the sex they were assigned at birth, not the gender they identify with.
In February, the Pentagon confirmed to CNN that the first transgender person had signed a contract to join the USA military following a federal judge's ruling that said the military would have to accept transgender people.
There are some exceptions to the restrictions: people who have a history of gender dysphoria may join the military if they "can demonstrate 36 consecutive months of stability - i.e. absence of gender dysphoria - immediately preceding their application", the report said.
"These documents set forth the policies on this issue that the Secretary of Defense, in the exercise of his independent judgment, has concluded should be adopted by the Department of Defense".
"Consistent with this new policy, we are asking the courts to lift all related preliminary injunctions in order to ensure the safety and security of the American people and the best fighting force in the world".
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The Human Rights Campaign, the nation's largest LGBT civil rights organization, accused the Trump administration of pushing "anti-transgender prejudices onto the military".
President's discrimination towards transgender people is well documented after he repealed Obama Administration's protection for transgender students.
The study estimated that health care costs would rise $2.4 million to $8.4 million a year, representing an infinitesimal 0.04 to 0.13 percent increase in spending.
It's unclear how many transgender individuals now serve in the USA military.
"(The Pentagon) will continue to assess and retain transgender service members", Pentagon spokesman Major David Eastburn said.
"What the White House has released tonight is transphobia masquerading as policy".
"Currently serving transgender service members will continue to go to work every day as they have before contributing to the readiness and lethality of the force".