A report by two academic institutions argues that faith schools fail to improve standards and create "social sorting" of children along lines of class, ability and religion or belief.

The researchers behind the study unveiled some of its headline findings on Friday, 17 April and will comment further at the Royal Economic Society annual conference in Guildford.

The Church of England dismissed the findings in advance of their publication.

The government sees the funding of single-faith schools by the taxpayer as a significant part of its educational choice agenda. But behind the public rhetoric, it remains uneasy about the contradiction between fairness and diversity on the one hand, whilst on the other, allowing publicly susbscribed schools to select on religious grounds in admissions and employment.

The Guardian newspaper reported yesterday that academics at the London School of Economics and the Institute of Education, both part of the University of London, found no proof that providing parents with the choice of a religious secondary school either raised results or helped drive up standards in other local schools.

This point has appeared in previous research, but faith school providers have so far been unwilling to engage in meaningful dialogue over the shortcomings of present policies, bolstered by the simplistic pro and anti nature of the media debate about religious foundation schools.

At a deeper level, the research suggests that government policies to promote a market in education - by promising parents a choice of school in the belief that the competition for children will improve standards - only create a more socially fragmented system.

The paper concludes that there is "significant evidence that religious schools are associated with higher levels of pupil sorting across schools, but no evidence that competition from faith schools raises area-wide pupil attainment".

The study tracked 550,000 children in state secondaries in 2005, looking at data on their school type, poverty indicators and exam results.

Anna Vignoles, co-author of the report, commented: "If faith schools genuinely give parents a choice, what should happen is that with lots of faith schools there is more choice, competition with other schools and standards being driven up. We didn't find that. Even in areas with high proportions of children in faith schools, there is certainly no evidence that standards are higher."

Although faith schools get better exam results, this is because the pupils who attend them had good test results at primary school and are from less disadvantaged backgrounds, measured by factors including whether they qualify for free school meals, say the researchers.

Rabbi Dr Jonathan Romain, chair of Accord, a coalition of religious and non-religious organisations which campaigns for inclusive schooling and against taxpayer-funded schools selecting pupils according to belief, said: "Religious discrimination is increasingly hard to justify and the government should not wait any longer before challenging it."

Simon Barrow, co-director of the religion and society think-tank Ekklesia, one of the founders of Accord, said: "The latest study by academics at the London School of Economics and the Institute of Education merits serious consideration by everyone who wants to see schooling in the UK being effective and genuinely open to all.

"Faith school providers and their critics need to engage with the problems and opportunities the research highlights, rather than dismiss them. A fresh approach is also required from government and opposition, starting from an agreement that discrimination can never be a good basis for education - or, we would add, for institutions claiming Christian or other religious example as part of their character."