The apology has quelled anger over the letter, which was signed by 34 Anglican school heads including those at Shellharbour Anglican College and The Illawarra Grammar School (TIGS).

But the church has indicated it will now lobby for replacement laws to ensure "positive protection" for religious freedom. 

Rally organiser and UOW student union representative Liv Pierson has claimed the apology as a victory for the LGBTI community.

“It goes to show that homophobic exemptions are totally out of touch with the rest of society’s expectations,” she said.

“Bigots can no longer hide behind excuses like ‘values and ethos’ to justify having discriminatory powers. 

“I'm happy the church has flipped on this issue, but I also feel that institutions shouldn't have to be provoked to be more accepting ... 

“The church should take this as an opportunity to become more inclusive of queer people of faith.”

Anglican Archbishop of Sydney Glenn Davies said on Thursday he was “deeply sorry” for the letter, which called for the preservation of exemptions to the Sex Discrimination Act 1984. 

The signatory principals had contended faith-based schools should have the right to employ staff who supported their “values, ethos and mission”. 

Bishop Davies said widespread upset over the schools' letter showed it was untenable to express religious freedoms in the form of exemptions to anti-discrimination laws.

He has asked federal politicians to urgently replace them with "positive protection" for religious freedom. 

TIGS principal Judi Nealy declined to be interviewed by the Mercury, but backed the Archbishop’s position in a written statement. 

“We seek an immediate bipartisan approach to the establishment of laws which foster freedom of religion without the need for discrimination,” she said. 

“This will allow the school to continue to operate as a caring and inclusive community based on Christian principles."

The principals’ letter was in response to a bill to stop discrimination (in the form of exemptions) against gay students. The government is still considering whether to end exemptions for teachers.  

Mrs Nealy had raised concerns about Monday’s “unwarranted” protest, which she said would take place at gates used by children aged 3-12, and would disrupt students who were sitting their International Baccalaureate final exams.