The last remaining Catholic adoption agency in the UK is being forced to close after a ruling that it could no longer specially favour married couples as adoptive parents.

The Charity Commission, the UK’s charity watchdog, ruled that Catholic Care, based in the diocese of Leeds, was ‘discriminating’ against same-sex couples as potential adoptive parents.

The agency had been given hope earlier this year that it could get around controversial anti-discrimination rules that forced other agencies either to close down or sever their links with the Church.

The agency’s pro-marriage policy is in accordance with Church teaching that recognises a child’s right to be raised by a mother and father, where possible.

In March a High Court judge had ordered that the Charity Commission consider whether to allow the agency to continue its pro-marriage policy citing a loophole in the law intended to favour homosexual charities.

At the time Mr Justice Briggs found that same-sex couples were not being discriminated against because the adoption agency dealt exclusively with difficult cases of children who had dropped out of the state system which is open to same-sex couples.

Catholic Care had argued that a clause of Labour’s Sexual Orientation Regulations, inserted to ensure homosexual organisations could not be sued for discrimination, entitled it to change its “charitable objects”.

However the commission said in a ruling today that it would not allow Catholic Care to exclude homosexuals from consideration as prospective adoptive parents.

The charity, which covers the diocese of Leeds, Middlesbrough and Hallam, is the only one of 11 Catholic adoption agencies to fight the 2007 Sexual Orientation Regulations (SORs) through the courts.

The commission agreed that Catholic Care, whose adoption agency is part of a wider social care organisation run by the Diocese of Leeds, offered a “valuable, high-quality service”. And they conceded that organisations could bend the rules in certain circumstances.

But it insisted that what it called ‘discrimination’ on the grounds of sexual orientation is a “serious matter” because it “departs from the principle of treating people equally”, and that exceptions could not be made for religious groups.

The watchdog added that it believed same-sex couples can be “successful” adoptive parents and that even if Catholic Care closes down, the children it would have helped would be placed with new families through “other channels”.

Andrew Hind, the Chief Executive of the Charity Commission, said: “This has been a complex and sensitive decision which the Commission has reached carefully, following the principles set out by the High Court, case law and on the basis of the evidence before us. Clearly the interests of children are paramount.

“In certain circumstances, it is not against the law for charities to discriminate on the grounds of sexual orientation. However, because the prohibition on such discrimination is a fundamental principle of human rights law, such discrimination can only be permitted in the most compelling circumstances. We have concluded that in this case the reasons Catholic Care have set out do not justify their wish to discriminate.”

The ruling means that Catholic Care is likely to have to close its adoption service, as if it decided instead to consider same-sex couples as parents it would be going against Catholic teaching on the importance of children having a mother and father. This would mean the agency, which can trace its origins back to an orphanage set up in Leeds in 1863, would lose Church funding.

Since Labour’s equality legislation came into effect in January 2009, all the other 11 Catholic adoption agencies in England have either had to close down or sever their ties with the church hierarchy. Catholic Care was the last to hold out as it launched its legal bid.

The charity, which only found out the judgement was coming on Wednesday, has not yet decided whether to close its adoption service.

But it said that it planned to set up an “adoption support service” instead, for those who have already been adopted or become adoptive parents with its help.

A spokesman for Catholic Care said: “The Charity is very disappointed with the outcome. Catholic Care will now consider whether there is any other way in which the Charity can continue to support families seeking to adopt children in need.

“In any event, Catholic Care will seek to register as an adoption support agency offering a service to those who were adopted in the past and are now seeking information about their background, and also to support adoptive parents already approved by Catholic Care.”