After their complaint of indirect racial discrimination at a popular Church of England school was rejected by the admissions regulator last week, campaigners are now considering whether to mount a legal challenge of faith school admissions.

Bury Church of England School in Greater Manchester was accused of indirectly selecting its pupils by race by The Accord Coalition, a campaign group seeking a radical overhaul of school admissions in order to open up faith schools to all youngsters, rather than just those of one faith.

The school, which is situated in an area where a large proportion of residents are Muslims of Pakistani origin or heritage, gives priority to children who regularly worship at Christian churches.

Campaigners regarded the complaint as a test case and hoped the ruling would have implications for the ability of all faith schools in England to select by faith in ethnically diverse areas.

They pointed out that at the nearest primary school, a Church of England school which does not select by faith, 70 per cent of the pupils are of Pakistani heritage.

However, only four of Bury C of E School’s 780 pupils were of South Asian descent. This contrasted with the less popular Derby High School next door, where more than 440 of the 840 students were of South Asian heritage.

Last week, the Office of the Schools Adjudicator (OSA) concluded that the school’s arrangements “did not amount to indirect discrimination on the basis of race” and confirmed that they complied with admissions regulations.

A spokesman for Accord said the group was “appalled” by the ruling, and that it had “major flaws”. He said: “The case we have presented seems a classic one of discrimination. We think the issue very important because where religious selection acts as a proxy for selection by race, it segregates on these grounds (which can often act as a proxy for racial and ethnic segregation).”

Faith schools are exempt from the prohibition against religious discrimination in the Equality Act. However, indirect discrimination is illegal under the Act if cannot be shown to be a proportionate means of achieving a legitimate aim.

The school’s submission to the OSA said the reason for prioritising families with a record of C of E attendance was to allow it to better communicate the school’s ethos to prospective families.

The adjudicator concluded that this was a “proportionate means” and there was no breach of the admissions code as “the arrangements do not unfairly disadvantage a child from any particular racial group”.

In 2010, the former schools adjudicator warned about the problem of faith schools “skewing” their admissions in favour of children from middle-class families by giving priority to those going to bell-ringing classes or church coffee mornings.