The country's Christian Democrats, with support of other center-right parties, blocked a legislative proposal that would have thrown out the law, arguing the issued is legally complex and needs further consideration, the Swedish news agency TT and The Local reported Thursday.
Other parties in the Riksdag parliament decried the move, saying a majority of members support efforts to ditch the requirement.
"It's too bad that the government and Prime Minister Fredrik Reinfeldt haven't taken into account that there is wide support in the Riksdag to scrap the [sterilization] requirement," Social Democrat Member of Parliament Lena Hallengren said.
Under the existing law passed in 1972, a person undergoing a sex change operation must be more than 18 years old, a Swedish citizen, unmarried and agree to be sterilized.
The Swedish Federation for Lesbian, Gay, Bisexual and Transgender Rights criticized the parliamentary decision, saying "government stability" had won out over respect for human rights.
"It's extremely remarkable that a democracy like Sweden now believes that this must be examined further," federation chairwoman Ulrika Westerlund said in a statement.