More than 50 people complained about the ad from the Coherent and Cohesive Voice group, which appeared in The Times.
The ad said the Labour Government was "going to decide what is and isn't acceptable" and "force their views onto you" with its proposed Sexual Orientation Regulations.
CCV said the rules would "force a family-run B&B to let out a double room to a transsexual couple, even if the family think it is in the best interests of their children to refuse to allow a situation in their own home".
It went on: "[The rules] make it illegal for a heterosexual policeman, fireman or member of the Armed Forces to refuse to join a Gay Pride event promoting the homosexual way of life.
"All British people should live together respectfully and peacefully but they should not be compelled by law to act against their conscience."
Among the complainants were the Fire Brigades Union, which said the ad was "inaccurate and misleading" and wrongly gave the impression that the views represented those of all Christians in the UK.
The Civil Service Rainbow Alliance complained that the ad was likely to provoke homophobic behaviour.
CVV defended the ad and said it was confident that the ad conformed to ASA rules "when read objectively". The Times, meanwhile, said it believed the ad was not likely to cause widespread offence to readers.
In its adjudication, the Advertising Standards Authority said the ad had "exaggerated the effect of the proposed regulations and was likely to mislead readers". It has told CCV not to repeat the ad in its current format.
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