Parents can claim child tax credits or Universal Credit for only their first two children unless there are special circumstances, under the so-called “two-child” policy introduced one year ago.
The Department for Work and Pensions say the policy will be introduced with safeguards and that those on benefits should face the same financial choices as those in work.
In a letter to The Times newspaper, religious leaders have warned that the policy is expected to tip an extra 200,000 children into poverty.
The letter adds: “It also conveys the regrettable message that some children matter less than others, depending on their place in the sibling birth order.
“It is a grave concern that there are likely to be mothers who will face an invidious choice between poverty and terminating an unplanned pregnancy.”
The letter has been signed by the new Bishop of London, the Rt Revd Sarah Mullally, as well as Harun Khan, secretary general of the Muslim Council of Britain, and Gillian Merron, chief executive of the Board of Deputies of British Jews
The two-child policy “is making it harder for parents to achieve a stable and resilient family life”, the letter says.
Many will have taken decisions about family size when they were able to support their children through work but may now be claiming benefits because of bereavement, redundancy or illness, it adds.
The Rt Revd Paul Butler, the Bishop of Durham and one of those who signed the letter, said: “As a society, we believe in compassion and justice. But right now, many children and families up and down our country are living in poverty.
“A combination of low pay, unstable jobs and high housing and living costs are locking families in a daily struggle to put food on the table.
“It is simply not right that some children get support and others don’t. We share a moral responsibility to make sure that everyone in our country has a decent standard of living and the same chances in life, no matter who they are or where they come from.
“The Government has an opportunity to right this wrong by removing its two-child limit policy. We urge the Prime Minister to address this burning injustice.”
The letter coincides with a new report published by the End Child Poverty Coalition, the Child Poverty Action Group and the Church of England, which warns the full impact of the policy is yet to be seen.
After the first year around 160,000 families with newborn babies are up to £2,780 a year worse off than if their youngest child had been born in the previous year, it found.
From February next year, the two-child limit will also apply to families with three or more children who make a new claim for Universal Credit, irrespective of when their children were born.
By 2020/21, an estimated 640,000 families, including around two million children, will be affected by this policy, it says.
The report also argues that the two-child limit and freeze on children’s benefits are the most damaging pieces of welfare reform for children, driving a sharp projected rise in child poverty in the next few years.
Last year the Institute for Fiscal Studies found that benefit cuts planned for the rest of this parliament will increase the rate of child poverty, reversing falls achieved since the early 2000s.
Alison Garnham, the Child Poverty Action Group’s chief executive, said the policy breaks the link between need and benefit entitlement.
She added: “We know that it is putting some mothers in the impossible position of deciding whether to continue with an unplanned pregnancy and see their family fall into poverty, or to have an abortion.
“A year in, the Government should reconsider this policy before more families are pulled below the poverty line.”