Barriers restricting faith schools must be abolished, a leading education charity has said.

The New Schools Network (NSN), which helps establish free schools, has said the cap on places allocated by religion should be relaxed to release "significant untapped potential" among faith schools.

Under current rules, faith groups setting up free schools can only give priority on the grounds of religion to 50 per cent of its places.

However NSN director, Nick Timothy, said the limits prevented "high-calibre school providers creating the much needed places that parents want".

The charity, which is partially funded by the Department for Education (DfE), said faith-based schools were "more popular with parents" and have a "proven track record of delivering high-quality education".

However there are disproportionately fewer faith-based free schools than other schools nationally with a faith ethos because of the cap, the charity said.

Timothy, who is a former chief of staff to Theresa May, is a long-standing advocate of the government's free school expansion programme. As well as pointing to the quality of education, he said free schools were "more likely to be ethnically diverse" in a bid to pursuade the government to lift the restrictions.

Paul Barber, director of the Catholic Education Service, explained the cap meant Catholic churches were unable to engage fully with opening free schools.

"The cap prevents the Church meeting demands from Catholic parents for Catholic places and could cause schools to turn Catholic families away on the grounds that they are Catholics," he said.

"To do so contravenes not only Canon Law but also common sense."

Christine Blower, leader of the National Union of Teachers (NUT), disagreed with NSN's proposal and said the cap "ensures at least half of the free schools' intake is not restricted to a particular faith".

"Free schools are paid for by all taxpayers. It would be wrong to exclude children local to the school where their parents wish them to attend irrespective of their faith," she said.

A DfE spokesman also defended the cap. "The requirement for all oversubscribed faith free schools to make at least 50 per cent of their places available to those of another or no faith helps to tackle segregation and ensures young people will experience the diversity of religious beliefs that make up modern Britain," he said.