THE government is to grant religious organisations the legal right to exclude gay and lesbian people from employment for the first time.

The move, which is expected to outrage MPs from all parties as well as liberal sections of the church and gay rights groups, follows a concerted lobbying campaign by the Church of England to include the clause in the British version of a European employment directive.

The legislation will enshrine in British law for the first time the right to discriminate against gays and lesbians in employment. It will allow any religious organisation to sack or refuse to employ a person on the grounds of "sexual orientation".

Chris Smith, the former Cabinet minister, said: "I'm very worried by this proposal. It is wrong to discriminate in employment whoever the employer may be and that is surely what the law should say."

His view was echoed by Roger Lyons, general secretary of Amicus, the trade union that represents church workers. He said he was "angered and upset" by the government's interpretation of the directive and had complained to John Prescott, the deputy prime minister, and Patricia Hewitt, the trade and industry secretary.

Critics say the new clause will make a mockery of European anti-discrimination legislation. The clause was added after pressure from the Archbishops' Council of the Church of England — a form of cabinet for the church.

Peter Tatchell, the gay rights campaigner, said: "The government has capitulated to the forces of religious extremism. It has given them the right to veto equality and perpetuate discrimination."

The Lesbian and Gay Christian Movement (LGCM) said the move would institutionalise homophobia in a way that "makes section 28 [which forbade the promotion of homosexuality by local authorities] look like a tea party".

The church defends the new clause, arguing that without it it would not have freedom to practise. In a four-page submission to government, the Archbishops' Council argued the European directive would mean that "actions taken by the church to enforce its own doctrines and beliefs in relation to sexual conduct could be found unlawful. For example a bishop who denied ordination to someone in a gay or lesbian relationship might be found to be discriminating unlawfully on grounds of sexual orientation."

The Department of Trade and Industry (DTI) conceded last week that the clause would affect not only clergy but also teachers in church schools and employees of religious charities or hospitals. Sources close to the DTI claim Downing Street forced it to accept the clauses.

The European employment directive — known as the "equal treatment directive" — was an attempt to outlaw discrimination on the grounds of sexual orientation, disability or faith. The government is introducing the European directive into UK law through a statutory instrument. It will be scrutinised by a joint select committee of both houses for its legal validity this Wednesday. It is planned to bring it into force on December 1.

The wording of the clauses in the statutory instrument are almost identical to those submitted by the Archbishop's Council to the DTI during a consultation process this year.

It says gays can be discriminated against if the "nature and context" of their job "conflicts with the [strong] religious convictions of a significant number of the religion's followers".

Critics say this would allow mosques, synagogues and churches to sack a gardener for being gay because his presence might upset the congregation.

A DTI spokesman admitted the new clause could result in sackings but said religious groups would have to prove that heterosexuality was a "genuine occupational requirement" before sacking or refusing to hire someone.

Critics say this view is naive and claim it would be simple for a religious group to show that an employee's presence conflicted with their "strongly held religious" beliefs.

Rowan Williams, the Archbishop of Canterbury, is likely to be embarrassed by the clause and his council's role in drafting it before he was enthroned. He has in the past supported the rights of gays in the church.