The Australian Greens says any religious groups that get taxpayer funds should be barred from taking advantage of anti-discrimination loopholes, as new argument flares about their right to choose staff.
Australian Christian Lobby head Jim Wallace says talk of an uproar about the issue is "a complete beat-up" and a sign of rising "militant atheism".
The Greens have accused the Australian Christian Lobby of trying to dictate government policy and demanded Prime Minister Julia Gillard reveal what she might have promised religious leaders about a draft bill bringing together national anti-discrimination laws.
Under current exemptions to legislation, religious groups can reject employees for being gay, single parents or living "in sin".
The Senate committee examining the draft bill and 585 submissions will hold public hearings in Sydney and Melbourne next week.
It is due to make recommendations next month on the legislation, which will amalgamate five existing statutes covering age, disability, race, sex and other forms of discrimination.
Mr Wallace's "beat-up" comments came after a Fairfax news report said Ms Gillard had assured religious groups they would have still have the freedom to discriminate against "sinners".
"What people are trying to create here is a new intolerance to faith," Mr Wallace told reporters in Canberra.
"I'm not aware of any church or any organisation actually rejecting employment of anyone."
Mr Wallace compared the freedom to hire and fire based on Christian values to a political party's right to refuse a job to a member of an opposing party.
"The church wants to reflect through its staff the philosophy of Christ," he said.
"All she (Gillard) said in her response to the concerns of Christian leaders is that she has no intention of limiting freedom of religion."
The government says its planned new human rights and anti-discrimination bill will merely simplify and consolidate existing legislation.
"This is a process that was about bringing together a whole range of different pieces of legislation, making it less confusing, making it more simple to follow, so that everyone knows where they stand," minister Kate Ellis told reporters in Adelaide.
"It's not about completely rewriting them."
When the draft was released last November, the Greens said it didn't go far enough, arguing the new legislation should cover aspects such as intersex status, religious beliefs or activity, irrelevant criminal records and social status.
Ms Ellis said on Wednesday the range of exemptions in current anti-discrimination legislation would remain.
They include letting church-affiliated groups use moral criteria in hiring.
However, exemptions in relation to commonwealth-funded aged-care providers will be removed.
No longer will they be permitted to discriminate on the grounds of sexual orientation and gender identity.
Greens spokeswoman Penny Wright said if aged-care providers could be removed from blanket exemptions, all organisations receiving government funds should be treated the same.
"Religious organisations and schools should not be treated differently to other entities; they should be held accountable," Senator Wright said on Wednesday.
"The right-wing Australian Christian Lobby does not represent mainstream churches or the vast bulk of religious people in Australia, and it should not be dictating anti-discrimination policy in Australia."
Labor MP Kelvin Thomson said it was a question of balance.
"I don't think churches should be worrying about whether a registrar at a school is gay or living in sin or anything like that," he told Sky News.
"I think we're getting well past the time where that was a relevant consideration."
Comment was being sought from other religious organisations.