The new Education Secretary Damian Hinds is set to scrap the rule which forces new Catholic schools to accept 50 per cent non-Catholic pupils and plans a big increase in faith schools, according to the Mail on Sunday.
Hinds, who attended a Catholic grammar school, is said to face a clash with schools chiefs over the plans.
The minister, who has been described as a 'liberal Catholic', last night gave a broad hint to the Mail on Sunday that he will axe the cap. An Education Department spokesperson said: 'We want to go further to ensure all young people have a good school place and are keen for faith groups to play a key role.
'Faith schools are more likely to be rated outstanding by Ofsted than non-faith schools.'
Hinds would respond to a year-long consultation on 'lifting the current cap on new faith Free Schools admissions in due course,' added the spokesperson.
The Prime Minister, Theresa May, pledged to drop the rule for new state-funded Free Schools in her General Election manifesto last year, reportedly at the insistence of her former No 10 aide Nick Timothy.
But the move was abandoned by the former Education Secretary Justine Greening after the schools watchdog Ofsted warned it would lead to 'increased segregation'.
Allowing more Catholic-only schools would also mean more Muslim-only and Jewish-only schools, the Mail on Sunday said. The 50 per cent cap, introduced ten years ago to stop the 'ghettoisation' of schools, could be axed by Hinds with the stroke of a pen. But now, opponents of faith schools are claiming that he has a conflict of interest.
Last week, the Guardian reported that Hinds accepted a £5,000 donation from the Catholic Church to fund an intern in his Commons office in 2014. The Church denied it was improper but the secular organisation Humanists UK called it 'deeply inappropriate lobbying'.
Hinds has denounced the 50 per cent cap, saying: 'A half-Catholic school is not the same thing as a Catholic school.'
Hinds said it was impossible for the Catholic Church to set up new schools because it 'could not support so-called Catholic schools turning away families seeking a Catholic education for their children in favour of [non-Catholic] others who live closer to the school.'
He has also denied reports that white, middle-class, non-Catholic families cheat the system to get children into high-performing Catholic schools.
'It is categorically untrue that they are a filtering device for middle-class, wealthy and bright children,' said Hinds, who attended St Ambrose, a Catholic school for boys in Cheshire.
'Few Catholic churches even have a bell tower. Anyone who says cleaning churches gives white middle-class families an advantage doesn't understand the demographics of those who clean churches.'
The Chief inspector of schools, Amanda Spielman, has said she is 'uncomfortable' about allowing more single-faith schools.
The Conservatives promised 500 new Free Schools by 2020, but have struggled to attract enough sponsors, partly because of resistance from churches as a result of the cap.