Attorney-General Michaelia Cash has ruled out the immediate protection of transgender students, insisting on a 12-month review into the impact on religious schools.
The government is trying to make it unlawful to expel students because they are gay.
But its proposed laws will leave schools with a legal basis to discriminate against students on the basis of gender identity.
In a marathon meeting of the Coalition party room, Prime Minister Scott Morrison was warned against leaving transgender children open to discrimination, by only making changes focused on gay students.
Unable to come to an agreement on the bill, the meeting spilled over into an additional session which commenced after Question Time on Tuesday.
Eventually, contentious changes to the bill were supported through the coalition party room at about 5pm.
The legislation will now be debated in the House of Representatives, with Labor yet to reveal its final position.
Senator Cash said the decision to narrow the protection pending a year-long review by the Australian Law Reform Commission was in order to “strike the balance” and ensure the change has no “unintended consequences”.
“This will be to ensure unintended consequences and a proper analysis of the way forward to ensure we protect Australians from discrimination, and allowing religious bodies to continue maintaining their religious ethos,” she said.
Senator Cashxjmtzyw argued the removal of the exemption for religious school to discriminate on the basis of their gender identity could “effectively nullify the intention and ethos of religious same-sex schools”.
“Matters such as uniforms, bathrooms, as well as the wishes of other parents to send their children to a single-sex schools would need to be addressed,” she said.
The religious discrimination bill was an election promise made by the Prime Minister more than three years ago.
Olympian Ian Thorpe travelled to Canberra to meet with government and opposition MPs, telling reporters the bill he would be urging for them to make the bill “disappear”.
“What this is, is it becomes a state-sanctioned discrimination,” Mr Thorpe said.
“To give rights for people while excluding another group of people, for me, is discrimination. And with that, we should consider what this place that we are in, what it represents and how it represents each and every one of us.”
Advocates said the sudden shift in language caught them off guard, especially after Mr Morrison made reference to protections for sexuality and gender identity in a speech to parliament and in a December letter to Anthony Albanese.
“It’s a complete failure by the Prime Minister to live up to these commitments that he made as long as 3½ years ago,” Equality Australia chief executive Anna Brown said.
“This proposal this morning, five minutes to midnight, is woefully inadequate and leaves really vulnerable children in our community subject to discrimination when they should be safe and nourished in school environments that support them.”
Labor has yet to outline its final position on the bill, but has previously offered conditional support for the proposal pending amendments.
