A Christian society has had its assets frozen and been banned from holding meetings at Birmingham University for refusing membership to non-Christians.
The university's Student Union Guild has demanded the Evangelical Christian Union amends its constitution to allow people of all faiths to become members and sit on its leadership body.
It has frozen assets of £5,500 belonging to the ECU and blocked it from using student union facilities until it complies.
Last night, the 76-year-old religious group accused the guild of "political correctness gone mad" and is threatening legal action to gain access to its funds ahead of a major religious awareness drive next week.
Andy Weatherley, a staff worker for the ECU, said: "Christian unions should be permitted to restrict membership to only those people who profess faith in Jesus Christ. It is a fundamental right of any organisation to be able to include in its membership only those who abide by the ethos and focus of the organisation.
"We believe this to be true for all organisations within the student union, not just religious or ethnic ones."
Pod Bhogal, communications director for the Universities and Colleges Christian Fellowship - an affiliation of Christian societies - said the issue was one of freedom of speech.
"In all our years of working with hundreds of higher education establishments, this action by Birmingham's guild is unique.
"It is over-the-top and looks like political correctness gone mad. We would not dream of telling a Muslim group or a political society how to elect their leaders or who could or could not become a member.
"That's entirely a matter to them, based on their own faith principles. The same applies to a Christian Union."
The guild believes the religious group must open its executive positions to people of all faiths.
It also objects to the use of the words "men" and "women" in the constitution instead of "persons", claiming it discriminates against transsexuals.
The dispute has resulted in the guild - which oversees 157 societies on campus - banning the evangelical group from using student union facilities.
University managers have been forced to step in to allow the organisation to erect a marquee within the grounds for its forthcoming week-long awareness drive called Truth.
A spokesman for the university said: "This is a matter between the Student Union Guild and the Evangelical Christian Union."
Birmingham University's Student Guild said it was merely enforcing the 1994 Education Act which states student societies have to be open to all.
It said 15 faith groups on campus - including the Islamic Society, the Sikh Society and a non-evangelical Christian body - had already complied with the regulations.
Guild president Richard Angell said: "It is not about faith, it is about complying with the law.
"Our members have the right to stand for the executive committee of any society they join. Our societies must be democratic and must not discriminate based on religion."
A solicitor acting for the evangelists has warned the guild it will be issued with court proceedings unless the funds are returned.