Increasingly available microbial reference data allow interpreting the composition and function of previously uncharacterized microbial communities in detail, via high-throughput sequencing analysis. However, efficient methods for read classification are required when the best database matches for short sequence reads are often shared among multiple reference sequences. Here, we take advantage of the fact that microbial sequences can be annotated relative to established tree structures, and we develop a highly scalable read classifier, PRROMenade, by enhancing the generalized Burrows-Wheeler transform with a labeling step to directly assign reads to the corresponding lowest taxonomic unit in an annotation tree. PRROMenade solves the multi-matching problem while allowing fast variable-size sequence classification for phylogenetic or functional annotation. Our simulations with 5% added differences from reference indicated only 1.5% error rate for PRROMenade functional classification. On metatranscriptomic data PRROMenade highlighted biologically relevant functional pathways related to diet-induced changes in the human gut microbiome.