Describing the judgement as an "unreasonably absolutist definition of free speech", the university said the ruling would leave institutions "powerless to prevent abusive, bullying and harassing speech".
The OfS, it added, had pursued a "vindictive and unreasonable campaign" against it.
Universities UK, which represents 141 institutions, said it would be writing to the OfS to clarify what would represent a breach of freedom of speech rules.
Chief executive Vivienne Stern said the University of Sussex ruling raised concerns about how universities can balance freedom of speech with other legal duties, like preventing harassment and hate speech.
Education Secretary Bridget Phillipson said free speech and academic freedom were "non-negotiables" in universities.
"I have been clear that where those principles are not upheld, robust action will be taken," she said.
"If you go to university, you must be prepared to have your views challenged, hear contrary opinions and be exposed to uncomfortable truths.
"We are giving the OfS stronger powers on freedom of speech so students and academics are not muzzled by the chilling effect demonstrated in this case."
The OfS was given the power to issue fines where freedom of speech was not upheld at a university in January.
Arif Ahmed, the OfS director for freedom of speech and academic freedom, said the decision to fine the university had followed a thorough investigation.
It found, he said, that the policy had meant staff feared disciplinary action and that Prof Stock had changed the way she taught her course as a result.
Dr Ahmed added that the OfS was "concerned that a chilling effect may have caused many more students and academics at the university to self-censor".
The regulator said the Trans and Non-Binary Equality Policy Statement issued by the University of Sussex was looked at in the context of existing legal duties on freedom of speech, as well as the European Convention on Human Rights.
In its report, the OfS found four elements of the policy to be "concerning".
These included a requirement for course materials to "positively represent trans people and trans lives" and an assertion that "transphobic propaganda… [would] not be tolerated".
