A CATHOLIC adoption agency risks being stripped of its charitable status after regulators upheld a ruling that it discriminates against gay couples who want to become parents.

St Margaret's Children and Family Care Society, which matches potential carers with children in need, prioritises couples who have been married for at least two years.

The Office of the Scottish Charity Regulator (OSCR) had earlier ruled that the policy was discriminatory and flouted equality laws.

St Margaret's, based in Glasgow, appealed the decision, claiming it was working within the law, but regulators confirmed its earlier ruling and said the organisation must change its policy in order to keep running as a charity.

It argued the number of successful placements could be hampered by prioritising candidates who are part of a couple, Catholic, married for at least two years and who wish to adopt within the framework of the faith.

Sources at the Catholic Church believe that St Margaret's will further contest the ruling.

The complaint against St Margaret's was first raised by The National Secular Society (NSS).

Alistair McBay, NSS spokesman for Scotland, welcomed the OSCR's decision to uphold its original finding. He said: "The original decision was the only one the regulator could have made."

A spokesman for St Margaret's said: "We are disappointed at the decision. We will consult our lawyers before considering what course of action to pursue. In the meantime, St Margaret's remains open for business."