The Uniting Church appears set to allow practising homosexuals to be ordained as priests, amid warnings of a major split.
In a heated debate at the church's national assembly in Melbourne, members failed to reach consensus on a proposal that would allow individual presbyteries to decide ordinations case by case.
The matter was adjourned for further debate on Thursday.
If consensus cannot be reached then, the proposal will be put to a vote, when it is expected to win majority support.
The Uniting Church is Australia's third-largest denomination with 1.4 million members.
Mary Hawkes, a spokeswoman for the conservative Evangelical Members within the Uniting Church group, predicted the church would face a mass exodus if the proposal was successful on Thursday.
"It looks to me ... that there is a real risk that some elements of the church will just say, `Well, that's it', and pack their bags and go. And I'm not sure that the church is ready for that," Mrs Hawkes said.
But retired priest and lesbian the Reverend Dorothy McRae-McMahon predicted the change would unify the congregation.
"This decision, which I believe will take place (Thursday), (will allow us) to walk together and see how we go, and to learn to know each other better and therefore find the truth."
It is not known whether plans to amalgamate with the Anglican Church, would be affected by the passing of the proposal.
The merger of the two churches came a step closer when the assembly voted to approve steps to start the process on Tuesday.
Anglican Church media officer Roland Ashby said whatever the outcome, it would be difficult to predict if it would have any influence on amalgamation plans.
He said the issue of homosexual priests was one that both churches were grappling with.
The Anglican Church allows gay priests, but they must be celibate.
Homosexual issues have threatened to split the Anglican church in the past month after a Canadian bishop approved gay marriages.
The church was also divided over an American priest, who left his family for his gay lover, being elected Bishop of New Hampshire and the case of homosexual English Canon Jeffery John who withdrew from the position of Bishop of Reading under pressure.
Uniting Church national assembly past president John Mavor did not expect gay priests would be a major issue between the two churches if they merged.
The Reverend Mavor passed the original motion to allow practising homosexuals to be ordained as priests in the Uniting Church.
"There are so many things we have to talk about before that happens (a merger)," Mr Mavor said.
"I think it (gay priests) will be way down on the list of things on the agenda."
The Uniting Church, which was formed in 1977 by a merger of the Presbyterian, Methodist and Congregational churches, will become the first mainstream church to allow practising homosexuals to be ordained if the proposal is passed.
The Uniting Church already has a number of clergy who are gay, but until now the church has effectively been operating on a `don't tell, don't ask' basis.