The move will come into effect from September 1 and follows a consultation last year with parents in which some parents claimed school uniform policies were too strict and “outdated.”
During the consultation, respondents said they wanted cheaper options and supported the introduction of gender-neutral uniforms.
So in future when a list of clothing items is published by a school, the items will not be assigned to a specific gender.
For example, trousers would not be described as a “boy’s item” and skirts would not be described as a “girl’s item.”
Minister for Education Kirsty Williams said: “We should not be enforcing outdated ideas of what clothes are suitable for their gender, especially if it makes them wear something they feel uncomfortable wearing.
“This new guidance makes clear that school uniform policies should not dictate items of clothing based on gender.”
The move to gender neutral uniforms has been welcomed by LGBT+ charity Stonewall which says it "strongly support the introduction of gender-neutral school uniform policies".
"We hope it will form part of a school-wide commitment to including all students and challenging gender stereotypes, which can be so damaging to how young people see themselves and fit in at school,” Andrew White, director at Stonewall Cymru tells The Independent.
"It’s really important young people have a choice in the clothes they wear, that they don’t feel forced to wear trousers or dresses but can instead pick what feels most comfortable for them. This move from the Welsh Government will help make sure every young person feels happy, welcome and accepted at school."
Previous guidance from 2011 about gender-neutral policies was non-statutory, which meant schools were not legally obliged to follow it.
The new guidance from the Welsh government is set to provide advice for governing bodies and head teachers on issues relating to school uniforms and will also expect schools to try and make uniforms more affordable and accessible.
Ways of keeping down the costs of uniforms could include stipulating basic items and colours but not styles, effectively meaning buy items from various outlets.
Schools will also have to consider whether there is a need for different uniforms for summer and winter, and whether school logos are absolutely necessary.
Ms Williams added: “This guidance will help reduce the burden on families, so our children can focus on fulfilling their potential and enjoying a healthy academic and social life.”
The topic of gender-neutral school uniforms has previously made headlines after it was revealed a gender-neutral school uniform policy has now been adopted in 120 schools across the UK.
Back in 2017 Educate & Celebrate, a charity that develops LGBT training in schools revealed that more than one hundred schools have signed up to its best-practice programme and hundreds more may have introduced a gender-neutral policy.
And last year it was revealed that schools across the UK are introducing bans on skirts in an effort to introduce more gender-neutral uniform policies.
According to the Sunday Times, uniform policies have revealed that at least 40 secondary schools in England have already stopped girls from wearing skirts, while a number of other schools are consulting on introducing a ban, the newspaper found.
Transgender organisation Mermaids UK has previously spoken out in favour of proposed uniform changes, calling it “a clear message of acceptance.”
Chief executive Susie Green said “adding gender neutral uniforms is one of many simple ways that schools can help any pupils struggling with their gender in any way.”
“Schools need to take a clear line to accept and embrace all diversity, no matter how small the numbers affected.”