Religious groups are to be forced to accept homosexual youth workers, secretaries and other staff, even if their faith holds same-sex relationships to be sinful.
Christian organisations fear that the tightened legislation, which is due to come into force next year, will undermine the integrity of churches and dilute their moral message.
It comes amid growing concern that Christians are being unfairly targeted by discrimination laws, following a number of high-profile cases of courts finding against believers who stand up for their faith.
Religious leaders had hoped to lobby for exemptions to the Equality Bill but Maria Eagle, the deputy equalities minister, has now indicated that it will cover almost all church employees.
"The circumstances in which religious institutions can practice anything less than full equality are few and far between," she told delegates at the Faith, Homophobia, Transphobia, & Human Rights conference in London.
"While the state would not intervene in narrowly ritual or doctrinal matters within faith groups, these communities cannot claim that everything they run is outside the scope of anti-discrimination law.
"Members of faith groups have a role in making the argument in their own communities for greater LGBT acceptance, but in the meantime the state has a duty to protect people from unfair treatment."
Under existing equalities legislation, any roles deemed to be necessary "for the purposes of an organised religion" are excluded from gay rights protection.
But the Equality Bill, which is currently passing through parliament, for the first time defines this as applying only to those who lead the liturgy or spend the majority of the time teaching doctrine - essentially just ministers, bishops and their equivalents in other faiths.
A spokesman for the Christian Institute, a religious charity, said that many churchgoers had deep concerns about how the bill would be enforced and accused politicians of hypocrisy.
"It would be absurd to pass a law demanding that the Labour Party employ card-carrying Conservative members, but that is effectively what churches are being told to do. We just want the same exceptions as political parties," he said.
"Christians are sick to the back teeth of equality and diversity laws that put them to the back of the queue. We are quite prepared to accept that people will take a different view to use on moral and ethical questions, but that should not mean we have to withdraw from public life."
Recent cases including the nurse suspended for offering to pray for a patient and the British Airways worker sent home for wearing a visible cross have left many believers afraid to go public with their faith at work.
Neil Addison, a Roman Catholic barrister and expert on religious discrimination law, said that the new legislation would leave churches powerless to defend the fabric of their organisation.
"This is a threat to religious identity. What we are losing is the right for organisations to make free choices," he said.
A spokesman for the Church of England said that while it supports the broad objectives of the Bill it "retains some concerns about the practical application of some specific aspects".
The Equality Bill, which was introduced to the Commons by Harriet Harman, the Minister for Women and Equality, will also strengthen laws against gender, age and disability discrimination.
A Government Equalities Office spokesman said: "The Equality Bill will not force a church to accept someone as a priest regardless of their sexual orientation or gender.
"Churches, synagogues, mosques and others will continue to have the freedom to choose who they employ in jobs which promote their religion. But where they provide services to the public they will have to treat everyone fairly."