The row over the Bishop of Oxford's appointment of a homosexual bishop has taken a new turn with reports that the Queen is "deeply concerned" about a rift in the Church of England.

Unnamed senior Government officials have said that the Queen first raised her concerns over the issue at her weekly audience with Prime Minister Tony Blair, according to the Sunday Telegraph.

Church leaders in Oxfordshire have warned that parish share payments to the Diocese could be withdrawn because of hostility to the appointment.

The Bishop of Oxford, the Rt Rev Richard Harries, has defended his support for Canon Jeffrey John as Bishop of Reading, saying that he wants to see a "much more gay and lesbian-friendly church".

Dr John admits he is in a 27-year faithful, same-sex relationship with another Anglican vicar, but maintains it has been celibate since the 1990s.

The Queen is Supreme Governor of the Church of England but has no say in the appointment of bishops, which are made by the relevant diocese.

The Sunday Telegraph quoted a Buckingham Palace official as saying: "As a senior lay figure in the Church of England and as somebody with her own deep faith, the Queen is aware of the divisions that have arisen and is deeply concerned."

The official added: "The Queen hopes for some sort of resolution."