Instead, the cap will remain but funds will be provided for local authorities to create faith schools that will be able to be fully selective on the grounds of religion.
Rev Stephen Terry, chair of The Accord Coalition for Inclusive Education, told Premier why he opposes the "loop-hole" the government has exploited.
Speaking during News Hour, he said: "It seems very potentially dangerous for [local authorities] to be given the opportunity to simply deal with families or with children who are within their own faith traditions.
"This goes entirely against the idea of building an open, inclusive and tolerant society."
Although the voluntary-aided faith schools will enable faith schools to be built with all pupils selected according to their faith, the move falls short of the Conservative's pledge they made before last year's general election.
However, Rev Terry told Premier he was "very pleased" the cap on faith-based free schools wouldn't be removed.
Meanwhile, the Government has also announced grammar schools in England are going to get £50 million to create new places.
Ministers have said the move will give parents more choice. But critics are disappointed money is being used in this way while there are claims the state system is at "breaking point".
Listen to Rev Stephen Terry speaking with Premier's Alex Williams:
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