A bitter and entrenched fight has erupted involving sections of the Catholic Church over its unusual decision to revoke a $300,050 building grant to a Brisbane Catholic primary school.

Last year the St Ignatius school, in the Brisbane western suburb of Toowong, announced a plan to build three classrooms on land bought in 1975 adjoining the school. It involved removing and selling an existing house to make way for the new building.

But residents and some parents reacted angrily and claimed the house was of historical and architectural value and sought its listing on both state and federal heritage registers.

While unsuccessful at state level, residents convinced the Australian Heritage Commission in February to place 12 hectares of land including the school and church properties and an adjoining convent on the 'interim list' of the Register of the National Estate.

As a result, the Federal Government said it could no longer fund the building project and revoked the $300,500 grant awarded to St Ignatius School the previous December.

The Federal Minister for Schools, Ross Free, said the school was still legally entitled to remove the building, but the government was obliged not to provide capital works' money for any project that diminished national estate values -- as removal would.

"We can't have a situation where one Commonwealth body is saying a precinct has to be preserved, while another Commonwealth body is providing funds contrary to that aim," Mr Free said. "The Commonwealth would have to seek legal advice as to whether a future grant is possible."

However St Ignatius's acting parish priest, Fr Vince Hurley, said the building, which residents call "Morrow House", was judged by state authorities to be of no heritage value and that the new building would be "quite beautiful" in the street.

Fr Hurley said the government was disadvantaging "hundreds" of catholic families and children by refusing them a satisfactory education. He said the building would go "as soon as possible" because the school desperately needed the new classrooms, and the church needed the $40,000 estimated as the sale price of the removed house.

A spokesperson for the residents, Carol Hetherington, said residents were planning to blockade the street whenever house-removal trailers arrived. She said Brisbane Catholic Archbishop John Bathersby should stop the building being relocated, but Mr Bathersby's office would not comment.

Fr Hurley said the parish and school realised it was risking its grant by proceeding to remove the house, but that after removal the school would reapply for its $300,500 grant when heritage was no longer an issue. "The catch is that if the land is empty, we can reapply. The federal government is always interested in education, so I have great hopes that they'll change their minds. Once the building's gone, it's another ball game."

Fr Hurley said the church, school, and convent was seeking exemption of their lands from the heritage area.

The principal of St Ignatius School, Steve Taylor, said the school would be "devastated" if it permanently lost its building grant. He said the vaste majority of parents supported St Ignatius's position.

But the views of Fr Hurley and Mr Taylor appear not to be supported by the government.

Federal local member Arch Bevis said it was "absolute nonsense" for the school to believe it would receive Commonwealth funding if it reapplied after removing the house. "It's a nonsense in law, and a nonsense in logic. It is fairyland stuff.

"To adopt that approach would be to make an absolute farce of the Australian Heritage process. It really is a ludicrous suggestion."

Mr Bevis said he did not believe alternatives to removal had been "fully and fairly explored". "Some people in the parish and the school believe every option was considered, but I'm not one of those people.

"If the school and the parish sat down with the Australian Heritage Commission and the Department of Employment, Education and Training and fully explored all options, the heritage commission might decide that removal is the only viable alternative.

"If there genuinely is no alternative, I will support the school, but I'm not convinced that all alternatives have been fully explored."

Mrs Hetherington said the Queensland Catholic Education Commission early this year prepared terms of reference for a consultant to examine alternatives, but the review never happened. She said the school and parish had only halfheartedly considered the resident's alternatives.

She said a report prepared by then school board chairman Frank Clair, the incoming chairman of the Criminal Justice Commission, was now out of date.

"In September last year, we provided alternatives to the school's building committee who rejected them out of hand without thorough consultation with all the parties." "It would be possible to build pleasant and functional classrooms underneath the Morrow building."

Fr Hurley said the plans for the new building "look really terrific", and that the new building "won't in any way lessen the scenic value of the crescent." "The sooner the old house goes, the better."

The current school board chairman, Gerard Neville, said the board had already examined all options thoroughly and "the minuses of other options clearly outweighed the pluses". He said residents knew the area was a school precinct. "The area is zoned special use - church, school, and convent."

Mrs Hetherington said "Morrow House" was significant architecturally, and was originally the home of Thomas Edgar Morrow, the son of Thomas Henry Morrow, the founder of the Morrow biscuit company. She said it was an essential part of the Toowong Ridge Conservation Area.