The decision by an Irish bishop and the country's Catholic child protection authority comes despite Father John Thomas Walshe receiving an official endorsement of his good character and reputation by Archbishop of Melbourne Denis Hart.
Father Walshe came to national prominence after he testified on behalf of Cardinal Pell at the sexual abuse royal commission late last year, which was investigating claims then Bishop Pell tried to buy the silence of a victim of notorious paedophile Gerald Ridsdale in 1993.
The controversial appearance led a former student priest, John Roach, to publicly reveal that Father Walshe himself had been found by church authorities to have committed an act of sexual abuse in 1982.
Under the Melbourne Response, a finding of sexual abuse can include child sexual abuse, sexual abuse of an adult and even sex between consenting adults that violates a priest's vow of celibacy. Such a finding is not equivalent to a sexual abuse conviction under Victorian criminal law.
In 2012, the Melbourne Archdiocese's Independent Commissioner accepted Father Walshe had sexually abused the then 18-year-old seminarian and paid him $75,000 in compensation, the maximum available under the Melbourne Response scheme.
Despite the adverse finding and payout, Archbishop Denis Hart and senior archdiocese officials have allowed Father Walshe to remain parish priest of Mentone-Parkdale.
The decision has been met with strident opposition from some in the congregation and parents of two primary schools affiliated with the parish.
In a letter obtained by Fairfax Media, Archbishop Hart maintains that what happened between John Roach and Father Walshe was a consensual "homosexual relationship" that only breached the "teachings of the church" and vow of celibacy taken by both men.
"While it amounted to 'sexual abuse' within the meaning of the Melbourne Response, it was not illegal, it was not child abuse and there was no finding that it was non-consensual," Archbishop Hart wrote on March 24, 2016, to solicitors representing concerned parishioners.
"The responsibility rests with me as Archbishop to determine whether Father Walshe is able to fulfil his pastoral responsibilities as parish priest."
But senior church authorities in Ireland have strongly disagreed about the gravity of Father Walshe's alleged offences and his suitability to act as a priest in that country.
Amid mounting public pressure over his future in the parish, Father Walshe took a sabbatical earlier this year that included plans to minister and live in the diocese of Cork & Ross in southern Ireland.
Fairfax Media understands Father Walshe had obtained a "celebret" from Archbishop Hart, which is an official church document endorsing him as a priest in good standing.
But Father Walshe's plans went awry after someone notified the National Board for Safeguarding Children in the Catholic Church in Ireland about his past.
Bishop of Cork & Ross, John Buckley, rejected Father's Walshe's application to minister and even refused him access to local church-owned accommodation.
Bishop Buckley and Ireland's national board have declined to comment on the decision.
But email correspondence obtained by Fairfax Media shows a local board official was "concerned from a safeguarding position" after the tip-off and discussed the case with Bishop Buckley, National Board for Safeguarding Children headquarters and the Archdiocese of Melbourne.
"Bishop Buckley, given the information in the media and from the Archdiocese and with consultation made the decision not to give [Walshe] facilities and did not provide accommodation during his stay," the email says.
According to Irish church regulations, priests must undergo strict vetting and have "no concerns, complainants or allegations" against their name to be considered in good standing.
No comparable system operates in the Archdiocese of Melbourne, which has seen Father Walshe last week return to his position in the parish of Mentone-Parkdale and at two affiliated Catholic primary schools.
The decision by the Archdiocese and school principals to continue to employ Father Walshe is provoking increasing opposition from some parishioners and parents.
"If this was a privately owned childcare centre that had the history of the Catholic Church, the childcare centre would have been closed down," said Andrew Pope, a spokesman for the Parent Committee Mentone-Parkdale. "But it's the Catholic Church and here we are, still struggling with some of these basic concepts."
Principal of St Patrick's Primary, Tim Noonan, and acting principal of St John Vianney's Primary, Helen Tantcheff, said "a small group of parents have continued to make allegations" about Father John Walshe, but said "there is no evidence to suggest student safety is at risk".
Fairfax Media can also reveal that the Victorian schools regulator ruled last month that Father Walshe satisfies the good character test for a school proprietor despite the church's finding of sexual abuse.
The Victorian Registration and Qualifications Authority justified its decision by saying the Melbourne Response – the body which found Father Walshe sexually abused a seminarian – was not technically a disciplinary body.
The Parent Committee Mentone-Parkdale has since filed a complaint with the Victorian Ombudsman, alleging the government's policy on what constituted a "good character" was deeply insufficient.
The Ombudsman declined to comment.
Melbourne Archdiocese spokesman Shane Healy said Father Walshe has been allowed to continue to act as a priest because it was the recommendation of the Independent Commissioner following the Melbourne Response finding.
"Decisions by a diocese in another country are matters entirely for them and it is their prerogative to make decisions in regard to priests practising in their diocese," he said.
In the letter written earlier this year, Archbishop Hart accused critics of Father Walshe's continued role in the church and school system of being "misguided" by conflating homosexuality with paedophilia.
"It's complete crap," one parishioner said, who asked to have her name withheld.
"Walshe wasn't found to have sexually abused children but he did sexually abuse an adult. This is the person the church wants to provide moral and spiritual leadership to the community?"
Stephen Elder, executive director of Catholic Education Melbourne, which oversees Catholic schools, said Father Walshe holds a Working with Children Check issued by the state department of justice, and if parents had "information that would question the validity of the check they should raise it immediately with the appropriate authorities"