Local Catholic leaders ruled that the youngsters were ineligible for the school because their parents' sexuality meant they were "living in open discord with Catholic teaching".
The pair, from Boulder, Colorado, were told they could finish pre-school, but would not be allowed to follow their classmates into grade school.
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"Parents living in open discord with Catholic teaching in areas of faith and morals unfortunately choose by their actions to disqualify their children from enrollment," the Archdiocese of Denver said in a statement.
The controversial decision came to light when teachers complained to local media.
Potesters showed up at the Sacred Heart Church on Sunday with signs asking "What would Jesus do?"
Public outcry
The Catholic Church has actively campaigned against gay marriage because it teaches that a valid marriage is only between a man and a woman.
"The church does not claim that people with a homosexual orientation are 'bad' or that their children are less loved by God... but what the church does teach is that sexual intimacy by anyone outside marriage is wrong (and) that marriage can only occur between a man and a woman," Archbishop Charles Chaput wrote in the Denver Catholic Register.
Aicila Lewis, executive director of Boulder Pride, a group that advocates for the gay community, said her organisation had received support from local Catholics.
"They want us to be aware that not everyone in the Catholic Church agrees with this decision. It's a wake-up call that this will cause a public outcry and not go unchallenged," Lewis said.
The pastor of Sacred Heart Catholic Church said it would be difficult for a child of gay parents to hear the church's teaching on marriage and then go home and see a different reality.
"We don't want to put any child in that tough position - nor do we want to put the parents, or the teachers, at odds with the teachings of the Catholic Church," Reverend William Breslin wrote in a blog.
