As Australian politicians prepare for debate over proposed new religious discrimination laws, senior faith leaders have warned that as the proposed legislation currently stands faith groups in Australia could go a "long way backwards".

The proposed legislation includes a move to accept recommendations from the Australian Law Reform Commission's (ALRC) report into religious educational institutions and anti-discrimination laws and remove section 38 from the Sex Discrimination Act—which offers protections for schools and other institutions taking religious beliefs into account when hiring and firing staff.

Prime Minister Anthony Albanese has proposed giving religious institutions the ability to preference teachers based on their faith through the creation of a new Religious Discrimination Act, a move that has drawn fierce criticism from both religious organisations and churches, as well as the Federal Opposition.

In a letter signed by Melbourne Archbishop Peter A Comensoli, Sydney Archbishop Anthony Fisher OP, and National Catholic Education Commission executive director Jacinta Collins, the writers stated that any removal of section 38 of the Sex Discrimination Act would require it to be replaced by legislation offering more precise protections for religious schools and corporations.

"If the (Government's) amendments to the SDA and the proposed Religious Discrimination Bill were enacted as currently drafted, there would be a very real and substantial reduction in existing legal and operational freedoms for religious education institutions," the archbishops and Ms Collins said.

"In essence, we would go a long way backwards. The current proposals would not provide sufficient legal and operational freedoms for religious educational institutions to maintain their religious ethos and fidelity to religious beliefs and practice."

In the letter, the Catholic leaders also laid a series of amendments that they claimed would ensure religious schools would retain the ability to "appropriately manage" student conduct when necessary "to preserve the institutions' religious ethos".

Archbishop Fisher, one of Australia's most senior Catholic leaders, warned that the Church might have to resort to more radical measures in response to an infringement of religious freedoms, raising the possibility of withdrawing its educational services as had happened during the 1962 Goulburn school strike.

Speaking to The Weekend Australian, he said closing Catholic schools should be considered "if we were told we were not allowed to take religion into account in who we employ, or in the ethos of our schools, which is quite a push at the moment".

He added, "So there's an example of, I think, a crunch point that would force us to consider withdrawal from a ministry."

According to the Australian national newspaper The Australian, which acquired a copy of the letter, the Anglican Church has put forward similar proposals, adding to the objections that have already been raised by numerous religious groups since the discussion around the new legislation began.

The proposed amendments have also become the subject of political debate, with the Opposition demanding that the governing Labor party take the concerns of faith groups into consideration when drafting the new laws, and the minority Greens party and LGBT groups pressuring the government to implement the ALRC's recommendations.

The Prime Minister has already flagged that he would not attempt to introduce a new Religious Discrimination Act unless it had bipartisan support, but so far the two major parties have been unable to find a consensus. Late last month, allegations surfaced that negotiations between Attorney-General Mark Dreyfus and his Coalition counterpart Michaelia Cash had broken down, after Senator Cash claimed that the Attorney-General was "aggressive and demeaning" towards her during a meeting held to discuss the legislation.

Senator Cash said Mr Dreyfus "needs to stop playing games with his religious discrimination legislation".

"As I told Mr Dreyfus, he needs to take on board the feedback he has received from the faith communities and release his legislation publicly," she said.