A Scottish Catholic priest, who has fought for 17 years to force the hierarchy to act against a fellow priest who abused him, has been dismissed from the diocese of Galloway while recovering from cancer and issued with a formal warning for talking to the Observer.

Father Patrick Lawson, who spoke out in the Observer in July using the pseudonym "Father Michael", was sent a decree of removal by Bishop John Cunningham last Wednesday, forcing him to hand over the keys of his parish house within two days. The bishop had consistently refused to accept Father Lawson's pleas, on the advice of doctors, to drop one of his two parishes – St Paul's, Hurlford – while convalescing.

The case is a potentially explosive development in an increasingly tense relationship between the Scottish hierarchy and the laity over abuse and cover-up. There is now a standoff in Father Lawson's other parish – St Sophia's, Galston – with many parishioners telling the Observer that they will walk out of masses this weekend in protest, cancel their church subscriptions, and refuse to return unless the priest is reinstated.

Parishioner Manuela Kevan says around 200 people have signed a petition backing the popular, hardworking priest. "We know what this is really about."

Significantly, there are now signs of rebellion among the clergy themselves. The Catholic church insists on silence and obedience from its priests but Father Gerard Magee of St Winin's in Kilwinning, has written to the papal nuncio in London, backing Father Lawson and criticising the diocese. "What they are doing is underhand, malicious and sinister," he writes. "They hide behind ... canon law and, by doing so, they abuse the same law and make a mockery of it."

Faultlines have been appearing in almost every Scottish diocese since the resignation of Cardinal Keith O'Brien in February, following Observer revelations about sexual misbehaviour with seminarians and priests. In the months following, the paper revealed historic abuse cases had been mishandled in Motherwell, national audits had not been carried out, and decades of abuse in the prestigious Catholic boarding school Fort Augustus Abbey had been concealed. The Observer also reported claims of gay cliques of Scottish priests. Father Lawson's case wove many of these strands together. He revealed that his parish priest, Father Paul Moore, abused altar boys and also made sexual advances to him in 1996 when he was a seminarian. Abuse-of-power sex scandals, it seems, were not confined to O'Brien.

Father Magee says Moore also approached him sexually but he didn't report it. Father Lawson's removal, he believes, is punishment for going public. "They're trying to get rid of him because he's a whistle-blower. A lot of priests don't like him because he spoke out. I don't understand why some priests are more intent on protecting the criminal rather than the victim."

In recent weeks, three bishops have sought to assure Scottish Catholics of transparency. Hugh Gilbert, bishop of Aberdeen, publicly apologised for Fort Augustus. Glasgow's archbishop, Mario Conti, claimed that O'Brien vetoed publication of abuse audits, but a new review would show "the seriousness and competence" with which the church tackles abuse. Meanwhile, Cunningham's predecessor, Maurice Taylor, who dealt with Paul Moore, wrote to a Catholic paper defending his handling of the case. But behind the scenes Father Lawson's case suggests secrecy, cover-up and turmoil remain.

"From the day Father Pat got ill he was given no support, yet they support an abuser priest," says parishioner Brigid McMaster. "Father Moore was bought a house and is listed as a retired priest. He should have been defrocked."

Old attitudes remain. Contacted by the Observer to ask if Moore should have been laicised, Taylor replied: "No, I don't think so." You couldn't, he added, apply today's standards to situations from 20 years ago. Is he in any doubt that it was a criminal offence to abuse a child in 1997? "I presume it was."

Moore, it's been claimed, was well-connected and protected. Despite publicly insisting that they were not close, Taylor now admits he holidayed with Moore, visiting Monsignor Peter Magee, then a Vatican diplomat. "We were asked separately. Because we were staying together, we travelled together."

Monsignor Magee belongs to the Galloway Diocese and now heads the Scottish Interdiocesan Tribunal, dealing with marriage annulments and canon law cases like Father Lawson's. "There is so much cronyism," says one Galloway insider.

Bishop Taylor claimed he didn't know Moore's victims. Father Lawson insists he gave names, addresses and numbers. "I don't remember," says Taylor. Father Lawson recalls Taylor dismissing one victim as "a nutter". "I cannot wash myself clean of that moment," says Lawson. "It sticks in my gut." Bishop Taylor says: "I don't think I would have used that expression. I don't remember." One of Moores's victims, Paul Smyth, confirmed that he has never been contacted by the church. "I would like an apology."

A formal appeal for Father Lawson will be sent to Rome instead of the Scottish Tribunal. Meanwhile, this weekend will be the last mass at St Sophia's for George and Christine Gardner, parishioners for over 30 years. "Father Lawson is a calm, courteous, understanding priest. I cannot attend mass when he has been removed," says George Gardner. Remaining silent is no longer an option, agrees Father Gerard Magee. "The people will speak – and let them speak."

The Catholic Church refused to comment.