The Prime Minister is trying to win back the support of "Old Labour", equally committed to secularism and comprehensive education and for whom faith schools are anathema, the
Centre for Policy Studies says.

Report author Christina Odone, a prominent Catholic journalist, said the Government is trying to remove faith schools' remaining autonomy and bring them into the state system.

But last night the Government denied that faith schools were under threat – and claimed the Centre for Policy Studies report was "a distortion of the truth".

In March Schools Secretary and Normanton MP Ed Balls announced that his department had uncovered "shocking evidence" of selection among faith schools in three sample areas – Northamptonshire, Barnet and Manchester.

The schools were interviewing pupils and parents, asking parents for hundreds of pounds and refusing to give places to children in local authority care, he said.

But in her report Ms Odone says: "The charge sheet that Ed Balls drew up against faith schools in March is highly damaging: selective and divisive, the schools flout the law and ignore their duty to society. This is a distortion that is based on prejudice – and will fuel it."

She added: "The witch hunt is on. A Government obsessed with phoney egalitarianism and control freakery is aligning itself with the strident secularist lobby to threaten the future of faith schools in Britain.

"The Government should think carefully before repeating the mistake Ed Balls made in March. Bullying and humiliations, plots and threats, simply serve to cement prejudices and an us-against-them mentality.

"Neither good schools nor a good society can flourish in this atmosphere."

Ms Odone says her research shows that faith schools do not "cream-skim" pupils, turn away children in care, create a ghetto mentality or teach Creationism in science, but gave poor parents a chance of a quality education that would otherwise be available only to middle-class parents.

They are neither divisive nor misogynist, nor do they charge parents for places, although Ms Odone acknowledges that some schools ask for voluntary contributions from parents, even before admission, to pay for extra teaching for religious studies and, in one case, for protection.

"Faith schools have an excellent academic record, serve their local communities, and ground their students in a religious as well as the national identity. Why squander this force for the good?

"Today's class warriors are bent on portraying faith schools as boutique education, the exclusive preserves of pushy middle class parents.

"Yet for low-income parents, these schools represent the only way their children can be taught the faith that their own family holds dear."

She also said they benefit Muslim girls as they give parents confidence to keep them in school longer and sharply raise the chances of going on to higher education.

Last night Schools Minister Jim Knight said: "The Government agrees that faith schools are inclusive, offer a good education and are popular with parents. Faith-based schools are assured a secure future in the state system under this Government, with parents from all backgrounds being offered an equal chance to get their children into these popular schools. To suggest otherwise is nonsense and a distortion of the truth."

In February last year David Cameron announ-ced he would follow in Tony Blair's footsteps and send daughter Nancy to a faith school. It would offer more "familiarity" than "enormous" standard state primaries.

In October 2006 St Cath-erine's Catholic High School, Halifax, was placed into special measures after a highly critical report from Ofsted.

It said pupils there – largely white – did not know enough about people from other faiths and backgrounds. They were well behaved but "there is limited development of the pupils' awareness of Brit-ain's cultural diversity."

In January 2005 the then head of Ofsted, David Bell, said Muslim faith schools risked undermining British society unless their pupils learned more about other cultures.