Banning Catholic adoption agencies from refusing to accept gay couples is the first step in moves to ban religion from public life, the leader of the church in England and Wales has warned.

Cardinal Cormac Murphy-O'Connor said the Government's equality laws created a "a new kind of morality" and expressed serious disappointment over the decision.

He insisted the church does not want to discriminate against homosexual people, who should be "held in respect and sensitivity", but believes children need a mother and a father.

Tony Blair ruled out any exemption from the rules for churches on Monday night in an attempt to draw a line under a row believed to have caused bitter divisions within the Cabinet.

In what he called a "sensible compromise", the Prime Minister said faith-run agencies would be given nearly two years to adjust to the new rules - due to be voted on by MPs next month. All "reasonable people" would be able to accept the compromise, he said, adding: "There is no place in our society for discrimination."

Regulations covering all adoption agencies offering publicly-funded services will come fully into force at the end of 2008. Until then there will be a "statutory duty" for agencies refusing to process applications from same-sex couples to refer them elsewhere.

The Cardinal accused the Government of telling the church it had "no place in the public life of this country" and said he hoped its agencies' work could continue.

"Over centuries in this country voluntary agencies, particularly the churches, have contributed to the common good in many different ways: in education; in health care; in adoption services," he told BBC Radio 4's Today programme. "And now the Government, or the state, for good reasons, have taken over a lot of that work.

"But the voluntary services have continued in different ways to contribute to the common good in that public space, helped by the Government - we've been very glad of that.

"It would be a great pity, in my view, if people weren't able to act according to their conscience for the sake of the common good in our country. It would be a lack of freedom for religious conviction."

Guardian.co.uk