It would mean that people in Scotland would no longer require a medical diagnosis to change gender. The timescale involved would also be reduced.
The UK government is considering using its own powers to block the Scottish legislation.
Under Section 35 of the Scotland Act, ministers can stop a bill getting royal assent – a power which has never previously been used.
Downing Street said Scottish Secretary Alister Jack would make an announcement ahead of Wednesday’s deadline.
The prime minister’s spokesman said: “No decision has been taken at this point by the UK government.
“It’s the secretary of state for Scotland who is the ultimate decision-maker.”
Nicola Sturgeon said there were no grounds to challenge the legislation, as it falls within the competence of the Scottish Parliament.
She said: “It doesn’t affect the operation of the equality act and it was passed by an overwhelming majority of the Scottish Parliament after very lengthy and intense scrutiny by MSPs of all parties.
“If there is a decision to challenge, then in my view then it will quite simply be a political decision and it will be using trans people, already one of the most vulnerable stigmatised groups in our society, as a political weapon.
“I think that will be unconscionable, indefensible and really quite disgraceful.”
UK ministers have concerns the Scottish system could come into conflict with UK-wide equalities law.
Prime Minister Rishi Sunak has said the government was taking advice on the implications of the reforms “as is completely standard practice”.
‘Slippery slope’
Ms Sturgeon said the significance the UK government using Section 35 powers would “go beyond the particular subject matter” of gender reforms.
She added: “There is a bigger issue of principle here, the right of the Scottish Parliament to legislate within its areas of competence.
“If we see a challenge this week then we will be seeing yet more evidence from this UK government of complete contempt for the Scottish Parliament and devolution.”
The first minister also said it would “embolden” the UK government to use Section 35 powers on other issues, which she described as “a very slippery slope indeed”.
The Labour leader told the BBC’s Sunday with Laura Kuenssberg he had concerns and felt 16-year-olds were too young to change their legally recognised gender.
But he stopped short of supporting a challenge to the legislation.
Ms Sturgeon pointed out that Scottish Labour had voted for the legislation at Holyrood.
She said: “If he backed any move by the government to block this he would be showing utter contempt for his own Scottish party as well as the Scottish Parliament.”
The controversial legislation, which is expected to come into force later this year, lowers the age at which people can apply for a gender recognition certificate in Scotland from 18 to 16.
It also removes the need for a medical diagnosis of gender dysphoria, while applicants only needing to have lived as their acquired gender for three months rather than two years – or six months if they are aged 16 or 17.