Ruth Kelly has faced calls to give up her cabinet responsibility for equality issues after reports that she is blocking new gay rights legislation.

According to the Observer, the communities secretary has concerns over moves to stop organisations refusing to provide services to people because of their sexuality.

She is said to have the backing of prime minister Tony Blair amid fears over the potential impact on faith schools and faith-based adoption agencies.

The paper reports that education secretary Alan Johnson is leading cabinet opposition to any move to water down the legislation.

Kelly has faced questions in the past over her suitability for leading on equalities issues given her devout Catholic views and membership of the Opus Dei organisation.

She has insisted that she remains fully committed to upholding and implementing government policy.

But Lib Dem spokesman on women and equality issues, Lorely Burt, said the latest news raised fresh questions over her suitability for holding the government equalities post.

"The government must not water down these proposals," she said.

"We had always feared that Ruth Kelly's personal beliefs would make her unsuitable to be a champion of gay rights.

"Unfortunately these fears have become reality and she should now stand down."

Burt added that in any commercial sphere the law "should not allow any individual or group belief to justify discrimination on the grounds of religion, race, gender or sexual orientation".

The Gay and Lesbian Humanist Association also called on Kelly to resign, saying that the latest events indicate that "she is putting her loyalty to Opus Dei first".