Anna Brown, the co-chair of the Equality Campaign and director of legal advocacy at the Human Rights Law Centre, told Guardian Australia that it is true there is a "gap in federal discrimination law when it comes to protections for religious minorities".
The leaked review, commissioned after last year's same-sex marriage victory to appease conservative MPs, was not expected to be released until after the byelection.
Students at religious schools (not pictured) could be turned away depending on their sexual orientation or gender identity.
Nevertheless, critics have said the report is less about the freedom to practice religion and more about discrimination by faith groups.
Some states - but not all - already allow schools to discriminate on the basis of sexual orientation, gender identity or relationship status.
The Australian has also gotten hold sections of the confidential report and says the recommendations surrounding how religious based schools can treat LGBTI students actually restrict how schools can discriminate against gay, bisexual and transgender students and teachers.
Morrison, who opposed the same-sex marriage bill and abstained from the final vote in December 2017, vowed to change the law to protect religious freedom in an interview last month, shortly after the sudden ouster of former Prime Minister Malcolm Turnbull.
"To some school communities, cultivating an environment and ethos which conforms to their religious beliefs is of paramount importance", the review said.
But, according to Fairfax, it says people of faith are entitled to "equal and effective protection" alongside sanctions against discrimination on the grounds of race or ethnic origin.
The review was ordered after last year's same-sex marriage victory to placate conservative MPs who anxious the change would reduce people's ability to practise their religion freely.
President of the Australian Catholic Bishops Conference, Archbishop Mark Coleridge, said Catholic schools welcomed staff and students from all backgrounds.
Treasurer Josh Frydenberg said Labor's concerns about discrimination against children were jumping the gun, insisting the government would "get the balance right" and leave existing laws untouched.
Alex Greenwich, an MP from Sydney and a gay rights activist, said he was concerned about the divisiveness of the report.
"We do not think that children should be discriminated against", Mr Morrison told Sky.
However, the review appeared to have stop short of allowing businesses to opt out of serving LGBTI people on religious grounds, as this would "unnecessarily encroach on other human rights" and "may cause significant harm to vulnerable groups" reported Fairfax.
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