Ministers have been accused of trying to impose "a new morality" by ruling Catholic adoption agencies should not be exempt from gay rights laws.
Cardinal Murphy-O'Connor said he was disappointed with the decision
Tony Blair has ruled against an opt-out despite agencies saying they will close rather than act against their beliefs.
However they are to be given 21 months to adjust to the new regulations.
Cardinal Cormac Murphy-O'Connor said he was disappointed, but said he hoped there might still be some way the agencies could "continue their work".
Cardinal Murphy-O'Connor, the head of Catholics in England and Wales, told BBC Radio 4's Today programme: "Some legislation, however well intended, in fact does create a new kind of morality, a new kind of norm - as this does."
He added: "It does seem to me we are having a new norm for what marriage is, because I think normally children should be brought up by a father and a mother and I think that we hold that that is extremely important.
"The government has a right to legislate and homosexual couples are also able to adopt in other agencies but we want to hold onto this principle."
Mr Blair said the proposal was a "sensible compromise"
He said the move risked forcing religious people out of public life.
"Here the Catholic Church and its adoption services are wishing to act according to its principles and conscience and the government is saying: 'No, we won't allow you to ... you have no space, you have no place in the public life of this country.'
"Now that seems to me to be just one step and there will be further ones."
The Equality Act, due to come into effect in England, Wales and Scotland in April, outlaws discrimination in the provision of goods, facilities and services on the basis of sexual orientation.
It means Catholic adoption agencies would be forced to consider gay people as prospective parents - currently they are referred to other agencies.
The row was said to have split the Cabinet and was opposed by the Catholic Church, backed by the Church of England and some other religious groups.
On Monday, Prime Minister Tony Blair said he had found a "sensible compromise", allowing faith-based agencies 21 months to adapt to the new rules - monitored by independent assessors.
The proposed measures are likely to face a vote in Parliament next month before coming into effect on 6 April.
But Cardinal Murphy-O'Connor told the BBC: "I'm very disappointed that we haven't been given the exemption that we desired."
He said that he hoped Catholic adoption agencies could still operate once the transition period was over.
"There may well be some way in which, without breaking the law, our Catholic services can continue in their work according to Catholic principles."