The Mail on Sunday has learned the Church will this week cut its ties with the Surrey-based Catholic Children’s Society, one of the biggest in the country covering much of the South-East.
The dioceses of Nottingham and Northampton have also decided to pull out of their agencies.
The development will anger Catholic MPs, who warned last year that the contentious legislation would have a dramatic impact on the charities.
Iain Duncan Smith, the former Tory leader, said: ‘This is a tragedy. We are taking the ethos out of these adoption agencies and leaving them with a crisis, all because the Government wouldn’t listen.’
It will also dismay hundreds of thousands of parishioners who have raised millions of pounds over the years to support the much-loved organisations.
Senior bishops put the blame squarely at the door of Government Ministers.
The Bishop of Arundel and Brighton, the Rt Rev Kieran Conry, said: ‘The Government has lost out. The Catholic agencies do and did very good work.
‘For the sake of a principle and certain political correctness we are losing some very good facilities.’
The fate of the ten remaining agencies in England and Wales is now in the balance.
The Church argues its agencies cannot remain both Catholic and conform with the Sexual Orientation Regulations.
The regulations, which aim to end discrimination against homosexuals by businesses, make it illegal for agencies to turn away same-sex couples who want to adopt or foster children.
They were forced through Parliament last year in the face of opposition from religious leaders, who believe gay adoption is morally wrong.
Former Prime Minister Tony Blair wanted to grant the agencies an exemption from the new laws but caved in after a Cabinet revolt. Instead he gave the charities nearly two years to conform and £250,000 to help develop ways of keeping them intact.
The Church will have to make some hard decisions over the summer as the deadline set by Mr Blair expires at the end of the year.
Some of the agencies, such as Catholic Care in Leeds, are intending to remain open for business and will fight any challenges in the courts.
But insiders said that the Catholic Children’s Society for the dioceses of Arundel and Brighton, Southwark and Portsmouth will this week agree plans to cut its ties with the Church and be renamed the Cabrini Children’s Society.
Its loss is a massive blow as it is one of the largest Catholic agencies, employing 150 staff and placing 50 children a year with new families.
Bishop Conry said: ‘The Government has forced us into this position by obliging the adoption agency to place children with same-sex couples.’
The Bishop of Northampton, the Rt Rev Peter Doyle, said he was ‘extremely sad’ that his agency was becoming a secular charity.
And the Bishop of Nottingham, the Rt Rev Malcolm McMahon, said: ‘We have been coerced into this. I am not happy about it at all.’
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