Pupils at Whitehall Primary School in Chingford, Essex, have also been told to sing edited versions of two modern hymns when they attend a carol service and nativity at a nearby church on Tuesday.
One mother of children at the school, Margarita said: "I picked my children up at the end of the day and they were so upset, saying to me: 'Mummy, today in assembly the head teacher told everybody that she would be changing the words to the Christmas song.' I was so shocked. As a family we go to church, pray together and celebrate Christmas as the birth of Jesus as the Son of God."
Headteacher, Zakia Khatun, had announced in the assembly that that reason for the change was so that 'all pupils can participate in the celebration'. Many other parents and staff at the school are unhappy about what has happened.
One parent told the Daily Mail the changes were utterly unacceptable and likened it to taking 'Christ' out of Christmas.
The mother, 36, said: "If he was just a baby boy named Jesus, there wouldn't be a celebration in the first place. He is our Lord and Saviour and King of all Kings – that's the whole point.
"It is also a tradition – it is taking away the traditions of the country."
The mother said her two sons, aged nine and 11 and who go to church and Sunday school, were very upset when the head teacher announced that the words of the carols would be changed.
She said: "My kids are being stopped from having the freedom to express their beliefs. They are shocked."
But the mother believes the school is now discriminating against Christian pupils she said: "We live in a multicultural society, so we should respect other beliefs but unfortunately Christianity is not getting respect.
"Ms Khatun doesn't want the people who don't have the same beliefs to feel excluded, yet it's OK to exclude Christians."
After a meeting at the school, the head reinforced the decision despite parents saying they had not been properly informed.
Margarita said the decision had failed to solve the problem of inclusion and instead would lead to the majority of Christian children being excluded: "I am not alone; teachers and other parents are not happy about this. I believe my children have been discriminated against and they have been denied the freedom to fully express their faith.
"I am taking this stand as Christian belief and tradition, which means so much to so many people of all generations, is being sacrificed and silenced in the name of inclusion and political correctness."
Commenting on why the removal of the word 'Lord' for Christians is so significant, Bishop Michael Nazir-Ali said: "We need to respect the original form of the carol and the intention with which it was written. The words the 'the Lord Jesus' occur three times in the carol and point to the central message of Christmas which is: God is with us in Jesus.
"Everything in the Church, where the nativity play is being held, points to this central truth of the Christian Faith.
"If parents do not wish their children to participate in a Christian nativity play and any accompanying worship, they should be able to opt out and the school should provide an alternate activity for such children, but basic Christian teaching should not be changed just to accommodate everybody."
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