The Morrison Government's Religious Discrimination Bill has been put on hold as PM loses support

The controversial bill has been dogged by claims that it would allow religious schools and other institutions to discriminate against people based on their gender identity and sexuality.

A lower house debate on the bill went into the early hours of Thursday morning and it saw five Liberals cross the floor to vote with Labor and the independents to amend the bill - this time abolishing the right for religious schools to discriminate against gay and transgender students.

The bill passed and was due to be voted on in the Senate on Thursday afternoon, but the government was forced to retreat after NSW Liberal Andrew Bragg intimated he was prepared to vote against his party.

The government will now ask for an inquiry into the consequences of the bill, postponing the vote and forcing the PM to break a major election promise.

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It is a win for for the opposition in the short term, but with the issue likely to return it also prolongs the agony for the transgender community.

"We're going to be going through the same emotions next time it goes to a vote," said activist and transgender Wagga woman Holly Conroy.

Labor duty senator for Riverina Deborah O'Neill said that Labor's amendments were a balanced approach to religious freedom.

But she said the government's withdrawal of the bill is an example of the PM trying to "divide the nation on this rather than lead for unity and harmony".

"The amendment passed last night to the Sex Discrimination Act seeks to protect both gay and trans students," she said.

"The government and Mr McCormack voted against that. Today they withdrew the religious Discrimination legislation. Another broken promise breaking our communities apart."

Member for Riverina Michael McCormack confirmed that the government has referred all religious exemptions in anti-discrimination law to the Australian Law Reform Commission for review.

"I empathise with those who are distressed by this debate taking place," he said.

"The overarching aim of this bill is to protect Australians with religious beliefs and Labor is trying to distract from that - it is about striking the right balance so that all parties are not adversely affected."

Mark Jeffreson, Labor Riverina branch president, said the PM pulled the bill and wanted to "get it off the books" until after the election.

"[Transgender people] now have to wait to see if they will be regarded as legitimate members of the community, that is what it essentially comes down to," he said.

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