LIV president Caroline Counsel said the Government had "watered down" the Act without consultation with the Victorian community.

"The Government has muzzled the powers of our Equal Opportunity Commissioner to investigate serious systemic workplace discrimination, as well as endorsing employment discrimination in religious schools," Counsel said.

"This is a backward step for equal opportunity and fair employment practices."

Under proposals introduced by the previous Government, the Victorian Equal Opportunity and Human Rights Commissioner would have had the power to address serious discrimination affecting organisations as a whole, and not just individuals.

In a submission last year, the LIV supported the "inherent requirements test" which would have forced religious organisations, including schools, to show that employment discrimination was necessary to fulfill the requirements of the job. This has been removed from the Bill.

"We believe it is important to balance the right to freedom of religious belief with the right to equality," Counsel said.