On Tuesday, the council recommended that the longstanding ban, relaxed in private schools last year, be ended altogether, state media in the ultra-conservative Muslim kingdom reported.
It is now up to the education ministry to decide whether to lift the ban, as the council is only advisory.
All education in Saudi Arabia is single-sex, but sports in girls schools remains a sensitive issue in a country where women have to cover from head to toe when in public.
"Saudi Arabia has a long way to go to end discriminatory practices against women, but allowing girls to play sports in government schools would move the ball down the field in ways that could have major long-term impact," HRW's Sarah Leah Whitson said.
"It’s a good sign that Saudi authorities appear to realise letting all girls in Saudi Arabia play sports is important to their physical and mental wellbeing," she said.
The group urged the government to "set out a clear strategy and accelerated timeline for rolling out physical education for girls in public and private schools."
It also demanded the kingdom start licensing women's gyms and facilitate the participation of women in all sports.
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The issue came under the spotlight at the 2012 Olympic Games in London, when the kingdom bowed to international pressure and sent female athletes to compete for the first time.
The International Olympic Committee agreed to allow the two Saudi women -- a judo player and a middle-distance runner -- to compete with their heads and bodies covered in deference to the Islamic dress code enforced at home.
Despite that, HRW says millions of Saudi women remain effectively barred from sports.
Saudi authorities shut down private gyms for women in 2009 and 2010, and women are effectively barred from sports arenas by strict rules banning men and women mixing in public.
The kingdom follows a strict interpretation of Islamic law, forbidding women to work or travel without the authorisation of their male guardians.
It is also the only country in the world that bans women from driving.