Heads will be forced to list children as young as five on school 'hate registers' over everyday playground insults.
Even minor incidents must be recorded as examples of serious bullying and details kept on a database until the pupil leaves secondary school.
Teachers are to be told that even if a primary school child uses homophobic or racist words without knowing their meaning, simply teaching them such words are hurtful and inappropriate is not enough.
Register: Minor playground insults must be recorded as examples of serious bullying and details kept on a database (file picture)
Instead the incident has to be recorded and his or her behaviour monitored for future signs of 'hate' bullying.
The accusations will also be recorded in databases held by councils and made available to Whitehall and ministers to help them devise future anti-bullying campaigns.
The scale of the effort to stop children using homophobic or racist language was revealed after the parents of a ten-year-old primary school pupil in Somerset, Peter Drury, were told that his name would be put on a register and his behaviour monitored while he remained at school.
The boy was reported after he called a friend 'gay boy'. His parents fear the record of homophobic bullying will count against him throughout his school career and even into adulthood.
In another incident last year a six-year-old girl, Sharona Gower, was reported for 'racist bullying' at her school near Tunbridge Wells in Kent.
Sharona was chased by two 11-year-old girls, one of whom taunted her that
she had chocolate on her face.
The six-year-old responded to one of the girls, who was black: 'Well, you've got chocolate on yours.'
Many schools nationwide have already followed advice that they should record incidents of alleged racist, homophobic or anti-disability bullying.
One report last year by the Manifesto Club civil liberties think-tank said that 40,000 children each year are having racist charges added to their school records.
But ministers aim to make reporting of supposed 'hate taunting' a legal requirement for every school, primary as well as secondary, and every local authority across the country from the beginning of the new school year in September.
Incidents considered serious will have to be reported to local authorities. Children's Secretary Ed Balls is set to introduce rules that, officials said, 'will mean that schools will have to record and report serious or recurring incidents of bullying to their local authority.
'This will include incidents of bullying and racism between pupils and abuse or bullying of school staff.
The Government is clear that schools must take seriously any complaints made of abuse or bullying by pupils.'
Schools will be expected to monitor the behaviour of individual children. Local authority records will show incidents and their nature, but not names of pupils.
Head teachers were first advised to keep records of racist incidents eight years ago.
Then, in 2007, heads were told to include disability-related and homophobic bullying in their tallies.
Rules for heads say that using language such as 'gay' - which has had near-universal usage among British schoolchildren in recent years to denote something as inferior - counts as homophobic bullying, even if pupils do not have any homophobic intention in mind when using the word.
Primary school pupils must be taught 'the nature and consequences of homophobic bullying', according to the rules.
Schools Minister Vernon Coaker said: 'The majority of schools already record incidents of bullying.
'However, we want to make sure that all schools have measures in place to prevent and tackle bullying and show they are taking it seriously.'
But concerns have been raised that the system turns everyday banter among children into incidents of racism or homophobia when none was meant.
Margaret Morrissey, founder of campaign group Parents Outloud, said: 'This is totally appalling. The use of such language is part of the learning process. Children need to learn where the boundaries lie. And I very much doubt they understand what they are saying.
'This does not mean that the behaviour shouldn't be challenged. It must be explained that it is wrong. But to keep a register that will haunt them for years to come is going far too far and is against all rights.'
Michele Elliott of the charity Kidscape said: 'Children are being criminalised and singled out here from a very early age when they don't know what they're doing.'
Tory MP Ann Widdecombe said: 'Abuse in the playground has always happened and always will.
'Children have to learn to take this as part of growing up and you can't punish children for doing something they don't understand while they are very young.'
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