Gay students and teachers could be rejected by religious schools under changes to anti-discrimination laws being recommended by a federal review into religious freedom.

The former attorney general Philip Ruddock, who chaired the review, said the right of schools to turn away gay students and teachers should be enshrined in the Sex Discrimination Act.

Scott Morrison has defended the recommendation, claiming that it is the “existing law” that religious schools can turn away gay students, despite several states banning the practice.

“To some school communities, cultivating an environment and ethos which conforms to their religious beliefs is of paramount importance,” the review says, according to a report in the Sydney Morning Herald.

“To the extent that this can be done in the context of appropriate safeguards for the rights and mental health of the child, the panel accepts their right to select, or preference, students who uphold the religious convictions of that school community.”

The power to hire and fire teachers based on their sexuality is already contained in several state laws, which exempt religious schools from laws that ban discrimination on the ground of sexuality.

But if the Ruddock recommendation is adopted, it would extend powers to religious schools to discriminate against gay staff in states that do not currently grant exemptions, such as Tasmania, states with narrow exemptions, like Western Australia, and states that prohibit discrimination against students, like Queensland.

Guardian Australia understands the Ruddock proposal would require schools to publicly state its policy to gain the ability to discriminate against staff and students on the ground of sexuality. Schools would have to have regard to the “best interests of the child” as the primary consideration before expelling them.

The Ruddock review was commissioned after the 2017 same-sex marriage vote and handed to the federal government five months ago. It is still to be officially released.

The Labor deputy leader, Tanya Plibersek, said her party was fundamentally opposed to increasing discrimination, although she has previously said Labor has no plans to roll back existing exemptions for religious institutions.

“As a human being and as a mother, the idea that adults would be discriminating against or rejecting children seems to me pretty awful,” Plibersek told Sky News on Wednesday.

In a statement on Wednesday morning, the prime minister Scott Morrison said: “Our government will consider the details and release our response after it has gone through a proper cabinet process.”

“We will protect religious freedom, and get the balance right,” he said. “Each proposal will be considered carefully and respectfully before any final decisions are taken.”

At a press conference Morrison said nine times that it is the “existing law” that religious schools can turn away gay students, accusing the media of “confusion” about the Ruddock proposal.

LGBTI advocates fear the comments indicate the federal government will move to override state discrimination laws with a broad religious exemption.

Tasmanian Gay and Lesbian Rights Group spokesperson, Rodney Croome, said Tasmanian law had prevented discrimination by religious schools against LGBTI students and teachers, and “the sky hasn’t fallen in”.

“Anti-discrimination laws on the mainland should come up to the standards set in Tasmania, instead of being watered down as the Ruddock panel has proposed.”

Entrenching the power to hire and fire gay teachers and eject gay students was one of the central demands of the Catholic church, the Anglican Diocese of Sydney and Christian Schools Australia in submissions to the Ruddock review.

But according to the Fairfax report, the review stops short of calls for a separate Religious Freedom Act or new exemptions to allow commercial service providers to discriminate against LGBTI people.

The review is expected to call for changes to make it unlawful to discriminate against someone on the basis of their religious belief or lack thereof, which LGBTI advocates including the Equality Campaign accepted in their submissions.

Alex Greenwich, the New South Wales Independent MP who co-chaired the national campaign in support of same-sex marriage, demanded Morrison rule out the recommendation for schools to have a right to discriminate on sexuality.

“The recommendation to increase discrimination in schools against the gay teachers and students is offensive to parents, teachers and school communities,” Greenwich said. “The government should be focusing on reducing, not increasing bullying in schools”

Australian Associated Press and Paul Karp

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