Pope Benedict XVI is to decide whether to defrock Fernando Lugo, a Roman Catholic Bishop, following his election as President of Paraguay, Vatican sources said today.

Mr Lugo, 56, a former Divine Word missionary and Bishop, was elected President of Paraguay with 41 per cent of the vote with a platform of land reform and help for the poor. His election ended over 60 years of rule by the Colorado Party, whose candidate Blanca Ovelar received 31 per cent of the vote.

Mr Lugo was ordained in 1977, and served as a missionary in Ecuador for five years. In 1992 he was appointed head of the Divine Word order in Paraguay, and was ordained a Bishop in 1994 by Pope John Paul II. He served for a decade as Bishop of the backward region of San Pedro, where his support for landless peasants earned him the nickname “Bishop of the Poor”.

He came to national prominence in March 2006 when he helped to organise and lead an opposition rally in the capital Asuncion. He resigned from the priesthood nine months later. But the Vatican refused to accept the resignation, arguing that serving as a priest is a “freely accepted lifetime commitment.”

Instead the Vatican suspended him from his duties “a divinis”, meaning that he could no longer say Mass or carry out other priestly functions such as administering the sacraments. This was enough to enable him to stand in the Presidential elections, but his victory now presents the Vatican with a dilemma over whether to “reduce him to lay status”.

Vatican officials said it was up to the Pope to decide, but that he would “take time to study the situation”. Mr Lugo’s decision to enter politics aroused fears in the Vatican of a return to “liberation theology” in Latin America. However, Pope Benedict is said to have privately made clear to the Paraguayan Bishops Conference that he intended to co-operate with Mr Lugo for the good of Latin America if he was elected.

Mr Lugo brought together leftist unions, indigenous people and poor farmers into a coalition to form the centre-left Patriotic Alliance for Change. He told supporters after his victory: “I invite Paraguayans of all political types, even the ones who don’t share our ideals, to help this country that was once great to be great again.”

When Mr Lugo announced his intention to stand for election in 2006 the Vatican sent him a letter signed by Cardinal Giovanni Battista Re, Prefect of the Congregation of Bishops and head of the Pontifical Commission for Latin America, in which the Cardinal declared that the Holy See had “learned with surprise” that some political parties “have the intention of presenting him as a candidate in the coming Presidential election in Paraguay.”

It added: “The acceptance of that offer would be clearly against the serious responsibility of a bishop ... Canon Law prohibits priests from participating in political parties or labour unions.” The letter asked Mr Lugo “in the name of Jesus Christ” to “seriously reflect on his behaviour”.

Mr Lugo replied “The Pope can either accept my decision or punish me. But I am in politics already.” Today Mr Lugo was reported as saying that he “sincerely apologised to members of the Church” if his “disobedience to Canon Law” in entering politics had caused them pain.