It was revealed on Wednesday Phillip Ruddock's review of religious freedoms recommended amending the federal Sex Discrimination Act to discriminate against students on the basis of sexual orientation, gender identity or relationship status - something some but not all states already allow.

The review - which has been tied up in cabinet deliberations since it was handed to government four months ago - was commissioned in the wake of last year’s postal vote results, with conservative MPs afraid legalising same-sex marriage would restrict people’s ability to practise their religion freely.

Prime Minister Scott Morrison said schools already had the right to discriminate against students and he was not proposing to change the law to "take away that existing arrangement".

Michael Lee, principal at the Catholic St Mary MacKillop College in Canberra, said he would never turn students or staff away because of their sexuality.

"I don't ask kids in year 7 if they're gay before I enrol them, I don't ask staff and I would hate to think anyone is feeling guilty or that they have to hide in my school," Mr Lee said.

At MacKillop, LGBTIQ students often said they had come to the school because of its inclusive policy, which extended beyond sexuality to faith, race and disability, he said.

While Mr Lee stopped short of saying no school should have the right to turn students away based on sexuality, he questioned how the Catholic message of love could sit alongside "discrimination and exclusion".

Ross Fox, ACT head of the Catholic Education Office, said he had yet to see the report into religious freedom, but "Catholic schools welcome all families who seek education in a Catholic school and continue to do so".

"[They] do not seek to discriminate against students and staff on the basis of sexuality, gender identity or relationship status," Mr Fox said.

But he also stressed that the office expected all students and staff choosing to enrol or work at a Catholic school to support its mission and values.

Justin Garrick, head of Canberra Grammar, tweeted his disgust at the recommendation on Wednesday.

"When does it end?" he wrote. "Any school that rejects a child on sexuality should not receive public money. Full stop.

"For the avoidance of any doubt, I do not respect, do not welcome and will never apply this discriminatory and hurtful proposal."

ACT Chief Minister Andrew Barr, who's on a trade mission to Japan, tweeted that "if true, this would represent an outrageous attack on the human rights of thousands of Australians".

"In practice, how would a school identify a gay student? Is it 'don’t ask, don’t tell'? Or just act straight and don’t draw attention to yourself?" Mr Barr, also the minister for social inclusion and equality, said.

Acting Chief Minister and Education Minister Yvette Berry said allowing such discrimination was a "step in the wrong direction".

"The government is not aware of any school that intends to take this step and would be deeply concerned if there was.

"The Australian community gave a very clear response to the federal government on how LGBTIQ Australians should be treated during the marriage equality vote late last year. The Australian people voted to remove discrimination from our laws – not introduce new discrimination.

"Our government has a proud record for standing up for the rights of LGBTIQ Canberrans. No matter who you are, no matter your background, sexual orientation or region, you will always be welcome at an ACT government school."

Ms Berry said the territory government would write to Mr Morrison asking him to rule the reform out and seek assurances from federal Labor they would not bring in such changes.

Greens leader Shane Rattenbury administers the ACT's Human Rights Act as justice minister. He said the suggestion of turning gay students away was not only " offensive to Australian values, it is arguably a breach of human rights standards".

“We do not accept discrimination and intolerance. We will fight to protect the wellbeing and human rights of our citizens, and we oppose the federal government's consistent push to legalise and validate discrimination and bigotry," Mr Rattenbury said.

He said it was "terrible and ironic" the proposal was being considered on World Mental Health Day.

“LGBTIQ Canberrans have already endured a damaging national conversation about their rights to be in equally recognised relationships. This ongoing debate will have a cumulative effect, compounding the harms already experienced and internalised. I gravely fear for the wellbeing of our LGBTIQ community, especially young people," Mr Rattenbury said.

Canberra Liberals' education spokeswoman Elizabeth Lee said while she hadn't seen the report, no schools had raised concerns about religious freedom with her.

"The cultural attitude that I have seen in Canberra’s religious schools is very warm and accepting of all children," Ms Lee said.