The obligation on state schools in England and Wales to provide a daily act of collective worship should be scrapped, according to former education secretary Charles Clarke.
In a series of suggested reforms, he called for a new national syllabus for teaching religion and claimed the phrase religious education should be changed to religious and moral education.
Mr Clarke made the recommendations in a report published by Westminster Faith Debates.
Religion in schools must be re-examined "in the light of contemporary beliefs and practices, illuminated by the latest research", he explained.
"On this basis we propose a new educational settlement which can better foster genuine understanding of modern religion and belief, and allow young people better to explore their own and other people's religious and non-religious beliefs and come to their own conclusions."
The British Humanist Association (BHA) broadly welcomed the report, while the Dean of Westminster, the Very Rev John Hall, said it provided "illumination" on young people's need to develop spirituality and morality.
Mr Clarke, who served as education secretary from 2002 to 2004, argued that it should no longer be a legal requirement for schools to provide a daily act of worship for pupils.
"The current requirement in statute for an act of collective worship should be abolished, and the decision about the form and character of school assemblies should be left to the governors of individual schools," he wrote.
The former Labour MP for Norwich South also called for a religious and moral education syllabus to be determined by the education secretary in agreement with a newly created advisory council consisting of experts on religion and education.
This would follow formal consultation with representatives of religions, humanism and other belief systems.
The report, co-authored by Linda Woodhead, professor of politics, philosophy and religion at Lancaster University, went on to say that more needs to be done to develop fairer admissions procedures for faith schools.
A Department for Education spokesman said: "Religious education is vitally important to help children develop the British values of tolerance, respect and understanding for others.
"It prepares young people for life in modern Britain and that is why it remains compulsory at all key stages. All locally agreed RE syllabuses must be broad, balanced and reflect the teaching and practices of principal religions.
"Faith schools are an important part of our diverse education system, allowing parents to choose to have their child educated in line with the tenets of a faith.
"Existing faith schools can choose to give priority to children of their own faith if they are oversubscribed. However all newly created faith free schools and academies may only prioritise half their places according to faith if they are oversubscribed.
"Parents can rightly withdraw their children from all or any part of RE in all schools."
Andrew Copson, chief executive of the BHA, said: "Every area of our education system that intersects with questions of religion or belief needs urgent review and that is what this pamphlet does systematically and with acuity.
"No one will agree with all of it, but it is an informed and valuable contribution to what should be one of the biggest education debates of our time."
Dr Hall said: "The place of religion in education is contested but there is no doubt that young people need a far better understanding than they currently have of the powerful motive force that is religious - and non-religious - faith, for good and ill.
"And they need to develop spirituality and morality.
"These matters require illumination and, on the basis of substantial experience, receive it here."
Reverend Nigel Genders, the Church of England's chief education officer, said: "The Church of England continues to be committed to the provision of high quality RE in schools, which is vital for a balanced understanding of the world today where more than 80% of the population are people of faith.
"The church strongly supports the statutory requirement for collective worship in all schools and there is plenty of flexibility in the provision to enable all pupils to benefit without compromising their faith or lack of it.
"Where there are real objections, it is a parent's right to withdraw their child from worship, and the very few who take up that right demonstrates that schools have found exciting and creative ways of using collective worship to further children's spiritual and moral development.
"There is no expectation of commitment and the exposure to the range of religious traditions encourages community cohesion."