Texas lawmakers have voted to advance a bill that would compel people to only use the public toilets that correspond with their birth gender.
The measure is designed to prohibit transgender people from using toilets of the gender with which they identify.
Republican supporters say the bill will protect women’s privacy in bathrooms, but critics say it is discrimination.
The Senate vote in Austin drew hundreds of protesters to the state capitol, but the committee voted 7-1 in favour.
It will now go before the Republican-controlled Senate, where it will be highly-prioritised, lawmakers say.
A similar law in North Carolina led to mass protests, business boycotts and cancelled events.
More than 400 people, including the parents of transgender school children, gave emotional testimony to the committee to say how the bill would affect their lives.
Chelsa Morrison was tearful as she talked about how her eight-year-old daughter Marilyn was bullied after her gender transition, and she feared this law would have a devastating effect.
Marilyn said she would be embarrassed using the boys’ toilet, and said: “This bill is horrifying to me and all my transgender friends.”
The Texas Association of Business, which has heavily criticised the bill, estimates that the state could lose $8.5bn (£6.9bn) in economic activity and as many as 185,000 jobs if it passes.
It has sparked a backlash from big businesses including the National Football League (NFL) with a spokesman for the league saying that the NFL “embraces inclusiveness”.
Republican supporters say the bill will protect women’s privacy and keep them safe from sexual predators posing as women.
Critics say it promotes discrimination against transgender people, an already stigmatised community.
After North Carolina passed a similar “bathroom bill”, the National Basketball Association (NBA) and celebrity musicians cancelled events, leading to the loss of economic activity totalling in the hundreds of millions of dollars.
That law is now on hold due to legal challenges, although the Justice Department has dropped its opposition to the North Carolina bill.
Texas Governor Greg Abbott shot back in a radio interview saying “the NFL needs to concentrate on playing football and get the heck out of politics”.