The study involving several Melbourne research bodies and the University of California, Los Angeles (UCLA) measured the variation in the androgen receptor gene, which is involved in the functioning of the sex hormone testosterone.
The researchers compared the DNA samples taken from the transsexuals with those taken from 250 typical men.
They found that the transsexuals were more likely than non-transsexuals to have a longer form of the gene.
"We think these genetic differences might reduce testosterone action and under-masculinise the brain during foetal development," news.com.au quoted Prince Henry's Institute researcher Lauren Hare as saying.
Lead researcher, Associate Professor Vincent Harley, head of molecular genetics at Prince Henry's Institute, said: "There is a social stigma that transsexualism is simply a lifestyle choice. However, our findings support a biological basis of how gender identity develops."
He also revealed that the research team were preparing for another study, and hoped to double the sample size and examine other genes.
He insisted that it was important to replicate the findings in other populations.
Researcher Trudy Kennedy, director of the Monash Gender Dysphoria Clinic, said that the new findings supported the notion that genetics and brain gender were important in transsexuality.
"This is something that people are born with and it's certainly not a lifestyle choice as some have suggested," she said.
The study was jointly funded by the National Health and Medical Research Council and the US National Institutes of Health.