Parliament will hold an unprecedented debate on Thursday on a new vision for the Church as a centre for social action and community support.
Westminster think-tank ResPublica has released a report entitled 'Holistic Mission: Social action and the Church of England', which highlights the "power of the Church to boost community action".
Launched by the Archbishop of Canterbury and written by Dr James Noyes and the Prime Minister's former policy guru, Philip Blond, the report aims to "unleash" the potential of the Church's many volunteers and encourages the Government to get involved in boosting social action projects already set up by faith groups.
It calls for an end to the "cold war between Church and State", and claims that refocusing the mission of the Church could result in multiple social benefits.
It is thought that the debate could result in a radical expansion of the role of the Church in modern British society. Blond says that the report demonstrates how the Church of England can "offer a credible alternative to broken public services and unresponsive private contractors".
"It is good news that the political elite is finally waking up to the Church's huge potential in 21st century society," he said.
"The Government's plans for decentralisation, localism and community empowerment will never be complete, or effective without the biggest supporter of localism and community action - the Church."
Archbishop Welby has asserted that social action, and "responding to the immediate and long term practical needs of our communities" is at the core of the Church's heritage.
"What I think I see in this report is that our Christian faith needs to transform our communities and I can point to churches right across the country where that is happening," he said.
The report has been praised by minister Nick Hurd, Minister for Civil Society, as a "very timely, very challenging, very good".
Stephen Timms, Labour MP and Shadow Minister for Employment, has also endorsed ResPublica's call for a Faith and Social Action unit in the Cabinet Office.
Blond and Noyes argue that there are barriers in place that hinder the growth of thousands of social action projects currently running in churches across the country, and that were these barriers to be removed, public services that are urgently needed could be delivered more effectively.
"The Church is an utterly unique institution with enormous reservoirs of good will, education and capacity," they say.
The report also reveals that almost 80% of Anglican churchgoers regularly volunteer, in comparison to less than half of the general population. This puts Anglicans at the forefront of the charitable and voluntary work symbolised by the Big Society.
Archbishop Welby said: "The Church that started the hospitals, that started schooling and that started the hospice movement, is continuing to meet social need out of love for Christ, wherever it is."
He also noted that the report is just "one strand of a much broader conversation that's going on about the kind of communities we want to build, about the responsibility we have to each other in those communities, and about the practical challenge of how we achieve those ends".