Some states - but not all - already allow schools to discriminate on the basis of sexual orientation, gender identity or relationship status.

Commonwealth laws also contain some provisions to permit faith-based schools to exercise this discretion.

A Fairfax Media report suggested a religious freedoms review recommended the right be enshrined in the federal Sex Discrimination Act to ensure a consistent national approach.

The review's panel, chaired by former Liberal minister Phillip Ruddock, said it accepted the right of schools to select or preference students who uphold their religious convictions.

Prime Minister Scott Morrison played down the proposal on Wednesday, saying such exemptions to anti-discrimination laws already exist.

"We're not proposing to change that law to take away that existing arrangement," he told reporters on the NSW Central Coast.

Attorney-General Christian Porter later clarified that no changes to the current arrangement, created by Labor in 2013, are proposed in the report.

"The Ruddock report does not recommend any changes to this regime," Mr Porter said.

Opposition Leader Bill Shorten said he can't believe the prime minister hasn't ruled out the "silly" idea completely.

"The fact is every child is entitled to human dignity. We shouldn't even be having this debate," Mr Shorten told reporters in Melbourne, demanding the government release the report.

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.

But Special Minister of State Alex Hawke strongly supports the proposal, saying it is up to individual Christian schools to negotiate their handling of gay students.

"I don't think it's controversial in Australia that people expect religious schools to teach the practice of their faith and their religion," he told Sky News.

Fellow Liberal MP Tim Wilson said he wouldn't be supporting any new laws that would broaden grounds for discrimination, and does not think the coalition would either.

The Ruddock review was commissioned after the 2017 national same-sex marriage vote and handed to the government several months ago, but is yet to be released.

Gay rights activists have slammed the proposal as a shameful assault on equality.

Alex Greenwich, who co-chaired the national campaign in support of same-sex marriage, is demanding the federal government rule it out.

The panel reportedly did not accept that businesses should be allowed to refuse services on religious grounds, such as denying a gay couple a wedding cake.

The review also found civil celebrants should not be entitled to refuse to conduct same-sex weddings if they became celebrants after it was was legalised, Fairfax Media reported.

Australian Associated Press