By Daniela Desantis and Conrado Hornos

ASUNCION/MONTEVIDEO (Reuters) - Uruguay will allow gays to join the armed forces by scrapping military rules that define homosexuality as a disorder, President Tabare Vazquez said on Thursday.

"The Uruguayan government does not discriminate against citizens based on their political, ethnic or sexual identity," the center-left leader told a news conference in Paraguay's capital, Asuncion, where he was on a state visit.

In late 2007, Uruguay became the first country in Latin America to legalize civil unions for gay couples, granting them rights similar to those enjoyed by married couples on matters such as inheritance, pensions and child custody.

Latin America is home to about half of the world's Roman Catholics, and government policies on gay rights and other divisive issues such as abortion tend to reflect the church's conservative stance.

"There were a series of rules ... regarding the psycho-physical requirements (for entry into the armed forces) in which homosexuality was seen as a sexual identity disorder, and this is what is being repealed," Deputy Defense Minister Jorge Menendez told Uruguayan radio.

Local media reported that some retired military officers disagreed with the decision, saying it could affect discipline in the ranks. On a website called uruguaymilitaria.com, one person wrote: "Did the government really need to take this stab at our armed forces?"

But Retired General Oscar Pereira told reporters he supports the move.

"Since there are always some military officials with their heads in the sand, the state should make sure this does not go unenforced over time," he said.

Uruguay, a nation of some 3.5 million people that borders the Atlantic Ocean between Argentina and Brazil, has about 30,000 people in its armed forces including administrative workers, Menendez said.

(Writing by Hilary Burke; Editing by Xavier Briand)