North Carolina’s governor sued the feds to defend his anti-LGBTQ law. The feds sued back.

North Carolina Gov. Pat McCrory and the federal government are suing each other in a growing battle over the state’s anti-LGBTQ law.

The expanding battle follows the Obama administration’s demands that the state stop enforcing the law, which prohibits transgender people from using the bathroom that aligns with their gender identity in schools and government buildings. (The state law also banned local nondiscrimination laws that include sexual orientation and gender identity, but the federal government did not directly address that aspect of the law in its letter.)

The Department of Justice said the law violated federal civil rights laws. It argues that existing federal civil rights protections, which ban sex discrimination in the workplace and education, also apply to trans people, because discrimination against trans people is based on gender-based expectations about others.

Gov. McCrory disagreed. So in a lawsuit filed in federal court on Monday morning, the state argued that the Obama administration misinterpreted federal civil rights laws. “This is an attempt to unilaterally rewrite long-established federal civil rights laws in a manner that is wholly inconsistent with the intent of Congress and disregards decades of statutory interpretation by the courts,” the lawsuit said.

Later in the day, the Obama administration stood its ground. So it filed a counter-lawsuit in another federal court.

In a press conference, US Attorney General Loretta Lynch denounced North Carolina’s law, arguing, “What this law does is inflict further indignity on a population that has suffered far more than its fair share.” Lynch turned to the trans community, adding, “We see you, we stand with you, and we will do everything we can to protect you.”

Ultimately, the issue will be settled in court. This could be a huge deal: If the courts recognize the Justice Department’s interpretation of federal civil rights law, it could effectively expand existing civil rights protections that explicitly ban discrimination based on race and sex, among other traits, to explicitly include gender identity.

That could, for the first time, shield trans people from discrimination in the workplace, housing, and education — although not public accommodations (restaurants, hotels, and other places that serve the public), because sex discrimination isn’t banned under federal law in those settings.

North Carolina had until Monday to respond to the Justice Department’s demand letter. The state risks losing billions in federal funding, particularly for education, if a court rules in the federal government’s favor.

For more, read Vox’s explainer.