Scott Morrison is proposing a conscience vote on laws he pledged to deliver by Christmas to stop discrimination against gay students at school.

The stalemate, which emerged after negotiations between the major parties collapsed on Wednesday, has been condemned by gay groups as “distressing” and likely to bring a repeat of the same-sex marriage postal plebiscite.

The sticking point is the Prime Minister’s demand that the legislation to end discrimination also include a guarantee that “nothing in the Act renders it unlawful to engage in teaching activity that is in good faith in accordance with the doctrines, tenets, beliefs or teachings of a particular religion”.

Mr Morrison’s offer is designed to give Labor three choices: agree to his legislation (which the ALP believes will increase discrimination), have a conscience vote to allow conservative Labor MPs to cross the floor, or get nothing and fail to resolve the issue.

Labor is leaning towards the third option.

That’s because it has legal advice that warns Mr Morrison’s moves would gut the religious freedom reforms and actually increase the risk of discrimination.

Mr Morrison and Christian Porter announce the proposal. Photo: Getty

In a media conference with Attorney-General Christian Porter on Wednesday, Mr Morrison said he was prepared to offer a free vote on the issue if Bill Shorten allowed Labor MPs the same.

“We all agree that there should be no discrimination against children,” Mr Morrison said.

“I would be happy to introduce it with the support of the Labor Party today, to suspend standing orders and get on with it. If they’re not prepared to support this bill, fair enough, that’s been their position until now.”

However, if Parliament rejected the bill, Mr Morrison said he was prepared to personally move it as a private member’s bill.

“Let’s just have a conscience vote for everybody and let’s just get it decided so we can all go back home at the end of the sitting period having this matter determined,” Mr Morrison said.

The brinkmanship unfolded after Labor was forced to pull its own private member’s bill on the issue from debate because of government amendments.

Labor Senate leader Penny Wong told Parliament it was a disappointing outcome.

“It means LGBTI kids now face the prospect of returning to school knowing that they could be expelled or discriminated against because they are gay,” she said.

“This amendment, passed with the support of Senators Griff and Patrick, would destroy the intent of the bill – that is, to remove discrimination against LGBTIQ students.

“Worse still, the advice is that the government’s amendment, which would pass with the support of Centre Alliance, would worsen discrimination against LGBTIQ students, allowing positive discrimination by staff and even allowing teachers to refuse to teach LGBTIQ students.”

Later, Deputy Labor leader Tanya Plibersek said she was worried the issue would go down the same route as the marriage equality debate.

“Someone will be suggesting a plebiscite next,” she said.

“The vast majority of schools have made it clear to us that they don’t want these provisions, they don’t use these provisions. They don’t want to discriminate.

“Labor members of Parliament do not support discrimination against children. We don’t need to take the temperature of the party to know that.”

Conservative Labor powerbroker Don Farrell agreed, arguing there was no evidence religious groups wanted to discriminate.

“I am not seeking a conscience vote on this issue, as the churches say they don’t use the exemptions,” he told The New Daily.

Mr Morrison first pledged “the complete removal” of the ability to discriminate against students based on gender or sexual orientation or relationship status or pregnancy on October 13.

However, he also signalled he wanted to ensure that religious schools would be able to continue to teach according to their beliefs.

That remains the sticking point that is stalling negotiations in the Senate.

Rainbow Families Victoria spokeswoman Felicity Marlowe said families were devastated.

“The LGBTI community continues to be fodder for this government and this kind of debate has a huge impact on vulnerable LGBTI people, particularly those who are not out to their families,” she said.

“The Prime Minister is not living up to his commitment.”