When New York artist Andres Serrano plunged a plastic crucifix into a glass of his own urine and photographed it in 1987 under the title Piss Christ, he said he was making a statement on the misuse of religion.

Controversy has followed the work ever since, but reached an unprecedented peak on Palm Sunday when it was attacked with hammers and destroyed after an "anti-blasphemy" campaign by French Catholic fundamentalists in the southern city of Avignon.

The violent slashing of the picture, and another Serrano photograph of a meditating nun, has plunged secular France into soul-searching about Christian fundamentalism and Nicolas Sarkozy's use of religious populism in his bid for re-election next year.

It also marks a return to an old standoff between Serrano and the religious right that dates back more than 20 years, to Reagan-era Republicanism in the US.

The photograph, full title Immersion (Piss Christ), was made in 1987 as part of Serrano's series showing religious objects submerged in fluids such as blood and milk. In 1989, rightwing Christian senators' criticism of Piss Christ led to a heated US debate on public arts funding. Republican Jesse Helms told the senate Serrano was "not an artist. He's a jerk."

Serrano defended his photograph as a criticism of the "billion-dollar Christ-for-profit industry" and a "condemnation of those who abuse the teachings of Christ for their own ignoble ends". It was vandalised in Australia, and neo-Nazis ransacked a Serrano show in Sweden in 2007.

The photograph had been shown in France several times without incident. For four months, it has hung in the exhibition I Believe in Miracles, to mark 10 years of art-dealer Yvon Lambert's personal collection in his 18th-century mansion gallery in Avignon. The show is due to end next month, but two weeks ago a concerted protest campaign began.

Civitas, a lobby group that says it aims to re-Christianize France, launched an online petition and mobilised other fundamentalist groups. The staunchly conservative archbishop of Vaucluse, Jean-Pierre Cattenoz, called Piss Christ "odious" and said he wanted this "trash" taken off the gallery walls. Last week the gallery complained of "extremist harassment" by fundamentalist Christian groups who wanted the work banned in France.

Lambert, one of France's best known art dealers, complained he was being "persecuted" by extremists who had sent him tens of thousands of complaint emails and bombarded the museum with spam. He likened the atmosphere to "a return to the middle ages".

On Saturday, around 1,000 Christian protesters marched through Avignon to the gallery. The protest group included a regional councillor for the extreme-right Front National, which recently scored well in the Vaucluse area in local elections. The gallery immediately stepped up security, putting plexiglass in front of the photograph and assigning two gallery guards to stand in front of it.

But on Palm Sunday morning, four people in sunglasses aged between 18 and 25 entered the exhibition just after it opened at 11am. One took a hammer out of his sock and threatened the guards with it. A guard grabbed another man around the waist but within seconds the group managed to take a hammer to the plexiglass screen and slash the photograph with another sharp object, thought to be a screwdriver or ice-pick. They also smashed another work, which showed the hands of a meditating nun.

The gallery director, Eric Mézil, said it would reopen with the destroyed works on show "so people can see what barbarians can do". He said there had been a kind of "inquisition" against the art work.

In a statement, he said the movement against Piss Christ had started at the time of President Nicolas Sarkozy's ruling UMP party's controversial debate on religion and secularism in France. At a record low in the polls before next year's presidential election, Sarkozy has been accused of using anti-Muslim and extreme-right rhetoric to appeal to voters and counter the rise of the Front National.

Asked by the daily Libération why the Piss Christ protest had happened now, Mézil pointed to Sarkozy's speech in March lauding "the Christian heritage of France" at Puy-en-Velay, where the first Crusades were preached.

He said: "Clearly we saw in Saturday's demonstration that a Catholic fringe wanted to take the president at his word, with extremely violent appeals." He said there was a climate of tension, with protesters insulting museum staff of north African origin. One guard said he heard: "I'm going to pour donkey piss on the Qur'an." An email to the museum talked about "plunging the diary of Anne Frank in urine".

The French culture minister, Frédéric Mitterrand, condemned the vandalism as an attack on the fundamental freedoms of creation and expression, but recognised that the art work could shock audiences.

The secretary general of Civitas, Alan Escada, told Le Dauphiné Libéré paper: "I don't support or condemn what happened," adding that the attack on the picture "reflects an understandable exasperation" with the museum.

A police complaint has been filed by the gallery and the guards.

• This article was amended on 19 April 2011. The original referred to the Senator Jesse Helms as Jesse James. This has been corrected.