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The 18-year-old, who now refers to herself as Stephen Ira, is said to have upset Beatty with the news while her mother Annette Bening has been supportive.
According to the National Enquirer, Kathlyn has told her parents from a young age that she planned to go through with the surgery once she reached the age of 18.
"Warren Beatty is beside himself over the situation with his daughter Kathlyn," a source said.
"He and Annette have tried to deal with this over the years when their daughter was younger, but she's determined to go ahead with the transgender operation, just like Chastity [Bono]."
Bening and Beatty married in 1992 after meeting on the set of Bugsy. They have four children together.
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