Nigel and Sally Rowe said it was a major concern that led them to take their two sons of out of a Church of England primary school in the Diocese of Portsmouth and home-school them instead.
The Rowes said at the beginning of the school year, their six-year-old son told them he had a boy in his class who wore a dress.
"Our children first said 'they're a boy and they're my friend, and now I've got say she instead of he'. "
The parents said a similar situation happened with their eight-year-old son at the same school two years ago. The parents told Premier their son was put in a situation where he had to "pretend that a child is something that they're not physically."
After raising concerns with the school, the Rowes said the response was "shockingly inappropriate" and didn't align with biblical values.
The written response from the Diocese of Portsmouth and the Church of England's Chief Education Officer said the school viewed: "the refusal to acknowledge a transgendered person's true gender e.g. by failing to use their adopted name or using gender inappropriate pronouns" to be "transphobic behaviour"."
Mr and Mrs Rowe told Premier as a Christian school, the school should follow "biblical values and the truth" .
Sally said: "They should have provided support for the transgender child in a private way with people who are trained professionals... and who can work through it with that child rather than just let it happen."
The Rowes have threatened legal action and are backed by the Christian Legal Centre.
The parents told Premier the topic of transgender children in schools has become a national issue and they want to be a voice for other parents who have the same concerns.
Sally added: "I think there's no open dialogue about it. It's like you're shut down, you can't speak what you believe because you'll be called transphobic... which is not the case, so we just feel it needs to be an open debate.
"It needs to be discussed without fear of being ridiculed."
Their aim is for the issue to be discussed at a government level.
Sally continued: "We want children safeguarded.
"At the age of six we don't think that the school should be that environment for this to be experimented with.
"It's a big thing. It has loads of different implications with bullying, what about changing rooms, what happens when they go through puberty? "
The school said in a statement: "When a parent or carer raises a concern about the feelings of their child when spending time in the company of a transgender identified pupil, support work is aimed at answering the question: 'How can we make your child feel better?' rather than compromising the rights of the transgender child."
The Rowes, who said they've taught their children to respect and love everybody, added that the school's handling of the situation did not show proper regard for the possible long-term emotional and psychological effects for the two young children seeking to 'change gender', or for the confusion and concern caused to other people by the suggestion that boys are not always boys, and girls are not always girls.
Listen to Premier's Tola Mbakwe speaking with Nigel and Sally Rowe here:
