Control and coordination of eukaryotic gene expression rely on transcriptional and posttranscriptional regulatory networks. Evolutionary innovations and adaptations often require rapid changes of such networks. It has long been hypothesized that transposable elements (TE) might contribute to the rewiring of regulatory interactions. More recently it emerged that TEs might bring in ready-to-use transcription factor binding sites to create alterations to the promoters by which they were captured. A process where the gene regulatory architecture is of remarkable plasticity is sex determination. While the more downstream components of the sex determination cascades are evolutionary conserved, the master regulators can switch between groups of organisms even on the interspecies level or between populations. In the medaka fish (Oryzias latipes) a duplicated copy of dmrt1, designated dmrt1bY or DMY, on the Y chromosome was shown to be the master regulator of male development, similar to Sry in mammals. We found that the dmrt1bY gene has acquired a new feedback downregulation of its expression. Additionally, the autosomal dmrt1a gene is also able to regulate transcription of its duplicated paralog by binding to a unique target Dmrt1 site nested within the dmrt1bY proximal promoter region. We could trace back this novel regulatory element to a highly conserved sequence within a new type of TE that inserted into the upstream region of dmrt1bY shortly after the duplication event. Our data provide functional evidence for a role of TEs in transcriptional network rewiring for sub- and/or neo-functionalization of duplicated genes. In the particular case of dmrt1bY, this contributed to create new hierarchies of sex-determining genes.