A number of graves have been disturbed in the process, leaving human remains – including a SKULL – strewn above the soil.
One local even found the grisly remains of a child just 25 metres from the entrance to a pre-school creche.
But parishioners living near All Saints, in Loughborough, Leics., have been warned there is little they can do – because badgers are a protected species.
It is illegal to kill badgers or destroy a sett, with those breaking the law facing prison sentences of up to six months or an unlimited fine.
As a result, church wardens have resorted to picking up stray bones and reburying them while saying prayers.
One resident, Jonathan Hayes, said he was left feeling queasy after he spotted the child remains near the nursery.
He said he noticed a mound of earth, around 2.5 metres in diameter and a metre high, when walking past the churchyard last week.
Landscape gardener Jonathan, 49, of Loughborough, said: “On top of these mounds you have got human bones – femurs and pelvis bones.
“Some of the others look like children’s bones.
“For a period of time you think badgers are nice – it’s wildlife and all that.
“But when you start seeing bones, possibly of children, and you see signs of some of the bones being gnawed, you it starts making you feel really sick.
“The church is concerned about protecting wildlife, but if it was rats they would have dealt with it straight away.”
He added: “Just because it is a churchyard you don’t know that these bones have been buried legitimately.”
The bones have been unearthed in the Peace Garden, a former graveyard in the grounds of All Saints Church.
Bodies are no longer buried in the historic spot, which is reportedly supposed to have been cleared of human remains in the 1970s.
But residents continue to scatter the ashes of loved ones on the consecrated land.
Charnwood Borough Council, who are responsible for maintaining the Peace Garden, said they are aware of the issue and are “aiming to resolve it in the near future”.
“Badgers are protected by law but we have secured permission from Natural England to carry out some work at the churchyard that will hopefully encourage them to move to another area,” they said.
“Once that happens we can then put in place measures to prevent them from returning.
“Any bones found in the churchyard are being re-interred by the church.”
A spokesman for the Diocese of Leicester and All Saints Church said they have not been able to remove the badgers since they are a protected species.
Trevor Shaw, Churchwarden of All Saints Church, said the council is responsible for maintaining the Peace Garden.
He said: “The church have been pursuing Charnwood Borough Council for a considerable number of months to have the badgers removed and the sett closed.
“We understand they have recently received permission from Natural England to go ahead with trapping and removing the badgers.
“We fully understand the feelings of local residents and regularly remove any exposed bones, although not always on a daily basis and store the bones within the church.
“We then liaise with CBC cemeteries department for them to be re-interred with suitable prayers.”
Leicestershire Police said the issue is being dealt with by All Saints and no criminal offences have been committed.