A gay man who was refused a job by a bishop won his claim for discrimination.
The landmark case leaves the Church of England facing a record bill for damages.
A tribunal heard that John Reaney was turned down for a youth worker's post after the Bishop of Hereford quizzed him for two hours about a previous gay relationship.
The 42-year-old said the "humiliating" interview with the Right Rev Anthony Priddis left him in tears.
The panel ruled that the Hereford Diocesan Board of Finance, representing the bishop, had unlawfully blocked the lay appointment on the grounds of sexuality.
The case has implications for other religious groups because it was the first test of their legal duty under anti-discrimination laws brought in in 2003.
Equality rules bar bias against workers on grounds of sexual orientation.
Religious groups were given an exemption to allow them to turn down gay candidates for clerical posts and traditionalists argue the exemption should apply to lay appointments too.
Mr Reaney, from Colwyn Bay, North Wales, hailed the ruling as a significant victory in equality for gay and lesbian Christians.
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