Citipointe Christian College says it will no longer require parents of students attending the college to sign a so-called enrolment contract condemning homosexuality and any identification with non-biological genders.
It comes after widespread public backlash, complaints by the Queensland Human Rights Commission and concerns raised by Queensland Education Minister Grace Grace about the contract.
The enrolment contract drawn up by the Brisbane Christian school stated "the college will only enrol the student on the basis of the gender that corresponds to their biological sex" and says homosexuality is "sinful", like bestiality, incest and paedophilia.
Ms Grace said "as a parent of a non-binary student", she believes the requirement is unacceptable.
In a statement, principal Brian Mulheran issued an apology, saying the school has heard the distress felt by students who believe they would be "discriminated against because of their sexuality or gender identity".
"I apologise to them and their families on behalf of the College," he said, adding that the school wants to be inclusive of all students.
"As stated previously, the College does not and will not discriminate against any student because of their sexuality or gender identity.
"It is central to our faith that being gay or transgender in no way diminishes a person's humanity or dignity in God's eyes."
The enrolment contract was issued to parents on Friday. A six-minute video from Mr Mulheran on Tuesday defended the document while also attempting to reassure parents that the college "does not judge students on the basis of sexuality or gender identity".
The Non-State Schools Accreditation Board has also begun to look into the case and whether the contract breached rules for students to be treated equally, under rules for schools that receive state government funding.
The school receives $3.6 million in recurring state funding and more than $10.8 million in federal government funding.
Prime Minister Scott Morrison has also weighed in on the controversy, saying the contract discriminates against some students.
"I don't support that," Mr Morrison told B105 Radio.
"My kids go to a Christian school here in Sydney and I wouldn't want my school doing that either."
The saga comes amid continued concern over the federal government's proposed Religious Discrimination Bill.
Experts and LGBTIQ+ advocates say the federal legislation could override state anti-discrimination laws and allow schools to insist on requirements from students and teachers based on religious beliefs.
But the prime minister said an amendment would ensure schools can't discriminate against same-sex attracted and gender-diverse students.
