British society is "underpinned by Christian values", the Government's senior law officer said as he dismissed criticism of David Cameron for talking about his faith.
But Attorney General Dominic Grieve said many people with "softer" religious views were put off from expressing their faith because of the "disturbing" rise of fundamentalism.
The Prime Minister's assertion that Britain is a "Christian country" was met with claims that he risked sowing "alienation and division" in society.
More than 50 writers, scientists, broadcasters and academics signed an open letter expressing concern at the "negative consequences" of the Prime Minister's assertion in a country where most people do not describe themselves as Christian.
But Mr Grieve said the authors of the letter, organised by the British Humanist Association, were "deluding themselves" and claimed that "atheism doesn't appear to have made much progress in this country".
In a Daily Telegraph interview Mr Grieve warned people were being discouraged from openly declaring their beliefs because of the "deep intolerance" of religious extremists of all faiths, including Islam and Christianity.
He said: "I do think that there has been a rise of an assertiveness of religious groups across the spectrum. That is why those with softer religious views find it disturbing and say they don't want anything to do with it."
According to the 2011 census, Ch ristianity remains the largest religious group at 33.2 million, or around six in 10 of the population, but around one in four people in England and Wales now classify themselves as having no religion.
Mr Grieve told the newspaper : "I do think that the rise of religious fundamentalism is a major deterrent to people. It is a big turn off away from religion generally, and it's very damaging in that context.
"It encourages people to say, 'I'm not interested', (it encourages) an unwillingness to express commitment."
But in a swipe at the signatories of the letter criticising Mr Cameron, including scientist and broadcaster Professor Jim Al-Khalili, and authors Philip Pullman and Sir Terry Pratchett, the Attorney General said: "The evidence in this country is overwhelming that most people in this country by a very substantial margin have religious belief in the supernatural or a deity.
"To that extent atheism doesn't appear to have made much progress in this country at all, which is probably why the people that wrote this letter are so exercised about it."
Mr Grieve said "our state, its ethics and our society are underpinned by Christian values" and added: "As I go around and look at the way we make laws, and indeed many of the underlying ethics of society are Christian based and the result of 1,500 years of Christian input into our national life.
"It is not going to disappear overnight. They (the atheists) are deluding themselves."
The controversy follows Mr Cameron's article last week for the Church Times in which he wrote of his own faith and his desire to infuse politics with Christian ideals and values.
Work and Pensions Secretary Iain Duncan Smith s aid those denying Britain was a Christian country were "absurd" and "ignoring both historical and constitutional reality", the Daily Telegraph said.