The Obama administration will order all US public schools to allow transgender students to access restrooms that match their identities in a move that escalates the national fight over LGBT rights that has erupted in response to North Carolina’s controversial “bathroom bill”.

The Justice Department and department of education will send the decree, a copy of which was obtained by the Guardian, on Friday. It offers guidelines to school districts across the country on how to protect transgender students from discrimination.

The letter, which was first reported by the New York Times, “does not add requirements to applicable law”, but provides extensive guidelines on how to ensure that trans students are treated fairly and have access to appropriate facilities.

Although the notice is not a direct legal threat and echoes previous comments from the White House, the letter makes clear that schools have legal obligations to protect trans students and that they risk federal funding if they do not comply.

The letter reads: “A school may provide separate facilities on the basis of sex, but must allow transgender students access to such facilities consistent with their gender identity.

“A school may not require transgender students to use facilities inconsistent with their gender identity or to use individual-user facilities when other students are not required to do so.”

The notice also makes clear that trangender students must have access to facilities “even in circumstances in which other students, parents or community members raise objections or concerns”.

It continues: “As is consistently recognized in civil rights cases, the desire to accommodate others’ discomfort cannot justify a policy that singles out and disadvantages a particular class of students.”

A lengthy document attached to the letter also provides “examples of policies and emerging practices for supporting transgender students”, and offers guidelines on privacy, confidentiality, anti-bullying and other issues affecting LGBT students.

“There is no room in our schools for discrimination of any kind, including discrimination against transgender students on the basis of their sex,” US attorney general Loretta Lynch said in a statement.

“This guidance gives administrators, teachers and parents the tools they need to protect transgender students from peer harassment and to identify and address unjust school policies.”

The announcement comes in the same week the justice department and North Carolina moved forward with a high-profile legal battle over the state’s bathroom law. Lynch has said the law amounts to “state-sponsored discrimination” and has caused transgender people to suffer “emotional harm, mental anguish, distress, humiliation and indignity”.

The law, HB2, effectively forces trans people to use restrooms that correspond to the sex assigned to them at birth, which critics say is unenforceable and a clear violation of the US Civil Rights Act. It also blocks cities from passing local anti-discrimination laws aimed at protecting LGBT people.

Pat McCrory, Republican governor of North Carolina, has defended the law as a privacy measure, accusing the federal government of a “baseless and blatant overreach” of its power. The state risks losing as much as as much $4.8bn in government funding by refusing to repeal the law.

The fight over trans rights extends beyond North Carolina. A federal appeals court in Virginia also recently ruled that barring a transgender boy from using the boys’ bathroom was a civil rights violation, and school officials in Chicago and Oregon have recently outlined protections for trans students.