Cabinet minister Matt Canavan has tried to calm the concerns of church leaders who are nervous about plans to outlaw discrimination against gay students.
The head of Australia's Presbyterian Church fears the ability of faith-based schools to insist on separate uniforms, sporting teams and toilets could be open to legal challenge if discrimination is banned.
"We will do nothing as a government that inhibits or limits the freedom of religion of schools to act in accordance with their values and principles," Senator Canavan told Sky News on Friday.
Dozens of Anglican schools have also warned against a separate push by Labor and the Greens to protect gay teachers from discrimination.
Senator Canavan said sexuality was not the real issue at play.
"The real issue is can schools hire people that live and are true to the faith and values that they seek to uphold," he said.
"I think it's right and proper that schools are able to hire people that are consistent with their values.
"It's no different than political parties being able to hire people that are consistent with their policy principles and outlooks on life as well."
Labor argues teachers in religious schools should carry out their duties in a way that upholds the ethos and values of that faith.
But the party also argues discrimination on the basis of gender identity or sexuality is categorically unacceptable.
"We believe schools should have the ability to continue to teach their values and their ethos, and to require their staff to act in ways that uphold that value and ethos and not undermine it," Labor senator Kristina Keneally said.
