Dave Scott, campaign director for Nil by Mouth, said the number of people being imprisoned for inflammatory comments on media such as Twitter is putting a strain on the justice system.
Mr Scott added the sentences can backfire because they harden the attitude of those convicted, instead of challenging them and better results can be achieved by working with offenders directly.
Last week, Police Scotland chief constable Sir Stephen House said offensive tirades on Twitter were the "new graffiti".
Writing in The Herald today, Mr Scott said Nil by Mouth research had shown the internet was a "breeding ground for sectarianism" but that many were still oblivious that posting hate messages on social media could result in prosecution.
He added prison terms, however, were not necessarily the most effective solution.
He writes: "These offences are also placing strain on the criminal justice system and many professionals working within it point to a growing research base which suggests jailing these offenders may only cause a hardening of their attitudes."
The charity is talking to the Crown Office about developing an alternative to jail for so-called Twitter trolls.
Mr Scott said it had already had breakthroughs working with other young people, but was frustrated sheriffs were unable to order offenders to work with Nil by Mouth as part of a community payback order or as an alternative to jail. He stressed the charity would not require any funding.
Mr Scott said: "Cyber-Bigotry is a growing problem in Scotland and having worked with a number of young people involved in posting sectarian abuse online what comes across is that they don't equate their actions with consequences. Often this behaviour is spurred on by blogs and web pages with targets for abuse highlighted and shared across message boards and chat rooms.
"We are very clear those guilty of sectarian abuse online should face consequences. Yet, we also have to look at how we break this depressing cycle of bigotry and ideally, we'd like to see engagement with groups such as Nil by Mouth being ordered by a court rather than conventional punishments such as cleaning up parks and picking up litter.
"We need to challenge the behaviour and provide an environment when the offender is confronted with the consequences of their actions and forced to ask themselves some very serious question about their attitudes.
"We believe that sheriffs, social workers and law officers would view this as a welcome addition to the range of disposals available to the courts and have had exploratory talks with the Crown Office about developing this. Given his remarks we'd also welcome the Chief Constable's support for this more restorative approach."
A spokesman for the Crown Office said: "The Lord Advocate has supported the proposal by Nil by Mouth to divert from prosecution some cases involving online sectarian abuse. We are in the process of consulting on taking this forward."
A spokesman for the Scottish Government said: "We are committed to tackling sectarianism, that's why we are investing £9 million and delivering 44 community-based projects, including two run by Nil by Mouth, aimed at preventing sectarian abuse.
"Our approach is working - the latest figures are show that religiously aggravated offending was reduced by 17 per cent last year. "