The decision not to unfrock Gallanagh, who also abused children at deaf school, is likely to prove embarrassing for the Catholic Church in England and Wales, which has up until now escaped from being dragged into the crisis that has engulfed the Catholic church in several countries over the past year.

Catholic priests have been accused of abusing children in Austria, Switzerland, the Netherlands, Brazil, Mexico, Italy and Germany.

Gallanagh abused boys while working as the chaplain of St John’s School for the Deaf in Boston Spa, West Yorkshire, in the 1970s. The abuse first came to light in 2002, by which time he was working as a parish priest in Horsforth, Leeds.

In 2005, by then 75 and retired, Gallanagh pleaded guilty to indecently assaulting two teenage pupils at the school. He was given a six-month suspended sentence and a further 11 charges involving boys as young as 11 were left on file.

However, he escaped being unfrocked – or laicised – following Bishop Roche’s decision that it would be sufficient to stop him from exercising his ministry.

“He is not in good standing with the Church as a priest,” said John Grady, the bishop’s spokesman.

“He is not allowed to exercise ministry of any kind. He has observed these restrictions to the letter.”

The diocese did not refer the case to the Vatican until 2007, according to Mr Grady, by which time Benedict XVI was Pope.

“When the Neil Gallanagh case was sent to Rome, the diocese did not ask for laicisation,” Mr Grady said.

“Bishop Roche took the view that Neil had had his faculties removed at the time of the disclosure – he had not acted as a priest or worn priest’s dress – and still does not.”

Gallanagh, who currently lives in a flat “under the observance of the church” and has been financially supported by the Church with a retirement grant, was moved to the school in 1973 despite having been fined for assaulting a nine-year-old boy 13 years earlier on the Isle of Man, while he was a priest in Northern Ireland.

At the time of the 1973 offence he told police “it was a horrible thing to do”, adding: “I have been worried with this sexual trouble for some time and recently it has become an obsession with me.”

Margaret Kennedy, founder of Minister and Clergy Sexual Abuse Survivors (MACSAS), a support group, said that the Church had not gone far enough in punishing Gallanagh.

“Defrocking him would send out a statement that he’s not fit to be a priest,” she said.

“He should not be left with this honour. By not defrocking him it says that he is still a man of God and that is clearly not the case.

“It’s insulting to the victims who have suffered that he has been allowed to remain as a priest.”

The disclosure that Gallanagh has been allowed to remain as a priest comes after Archbishop Nichols recently cited the ability to defrock priests as one of the key changes Pope Benedict had introduced to protect children.

“He pushed forward, for example, a fast-track to defrock priests who have committed abuse,” the Archbishop said. “He changed the statute of limitations in Church law.”

Kevin Walton, who was abused as a boy at the school, said he was shocked to hear that Fr Gallanagh has been allowed to remain a priest.

“He was known to have abused before in Ireland, then to Boston Spa with vulnerable Deaf boys,” he said.

“The church has not acted strongly enough at all, too many silences, brushing under carpet, not saying any more about it, as if they hope things will quieten down.”