Scott Morrison, who is a Christian, said new legislation would "make it clear that no student of a non-state school should be expelled on the basis of their sexuality".
There are currently Australian states where schools are able to reject gay students and teachers.
Mr Morrison defended leaked proposals last week to let religious schools discriminate against gay students, and said the proposals were already "existing law".
However, he has since backed reform and made it clear that religious schools would not be allowed to discriminate under new legislation.
"Given recent misreporting, we have an opportunity here to bring forward a simple amendment to end the confusion," he said.
The report suggested religious schools should be guaranteed the right to turn away gay students and teachers and also to discriminate on the basis of gender identity and relationship status.
Fairfax Media, which obtained a copy of the report, quoted the report as saying: "There is a wide variety of religious schools in Australia and... to some school communities, cultivating an environment and ethos which conforms to their religious beliefs is of paramount importance."
While the proposals are yet to be debated by cabinet, Mr Morrison said they would be considered "carefully and respectfully".
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