The Catholic Church says children can be protected while maintaining the seal of confession, despite the prime minister declaring child safety must come first.
Malcolm Turnbull has called on churches to prioritise the safety of children, even if child abuse has been revealed in confession.
Australian Catholic Bishops Conference president Archbishop Mark Coleridge said the church does not view the sacramental seal as incompatible with maintaining child safety.
He said the church wants measures that will genuinely make environments safer for children.
"There has been no compelling evidence to suggest that legal abolition of the seal of confession will help in that regard," he said.
"Protecting children and upholding the integrity of Catholic sacraments are not mutually exclusive and the church wants to continue to work with government to ensure both can be achieved and maintained."
Australia's Catholic leaders maintain the seal of confession cannot be broken even if priests face criminal charges for failing to reveal child abuse, as recommended by the child abuse royal commission.
In announcing the federal government's formal response to the inquiry, Prime Minister Malcolm Turnbull had a clear message to the churches: "The safety of children should always be put first."
Federal Attorney-General Christian Porter said the states and territories, which had responsibility for mandatory reporting laws and systems, currently dealt with priests in different ways.
"The process will be that the states have agreed to harmonise their laws, so in effect to accept the recommendation of the royal commission," he said.
The only question for the federal government was how state laws interacted with section 127 of the Commonwealth Uniform Evidence Act, which covers religious confessions.
"That provides a protection to the confessional, but ever since that provision has existed that protection has never been absolute," Mr Porter said.
"It's always been very heavily qualified by the fact that confessions made for a criminal purpose have never been the subject of a protection or a privilege."
NSW Attorney-General Mark Speakman said the Council of Attorneys-General reached no agreement in principle, or in detail, on the religious confession privilege under the evidence act.
"NSW remains of the view that the issue should be considered at a national level," he said.
The ACT Legislative Assembly last week passed legislation requiring priests to break the seal of confession and report abusers.
But there will be a nine-month wait before the law is enforced as the government works through the "legal complexities" of the bill.