The health ministry said that transgender people will instead be described as having "gender discordance" to ensure universal access to mental health treatment.
The move came after the government last month updated its list of insurable health conditions -- which since 2021 has offered benefits for mental health treatment -- to include services for transgender people.
In that decree, the health ministry described transgender people -- those who reject the sex they were assigned at birth -- as having a "mental disorder."
Hundreds of people had protested the move outside the health ministry on May 17, the International Day Against Homophobia, Transphobia and Biphobia.
"We demand the repeal of this transphobic and violent decree, which goes against our trans identities in Peru," activist Gianna Camacho of the Coordinacion Nacional LGTBIQ+ told AFP during the protest.
"We are not mentally ill and we do not suffer from any mental disorder," she added.
Human Rights Watch had also described the decree as "profoundly regressive" in a country that does not allow same-sex marriage nor for transgender people to change their identity documents.
