A man armed with a knife approached Tomy Kalathoor Mathew, 48, in the church foyer moments before the Italian- language mass at St Matthew's Parish in Fawkner yesterday.
It's believed that the offender told the priest that because he was Indian, he must be a Hindu or a Muslim and therefore unqualified to say mass, local media reported.
"There was some shouting and a lot of movement at the back of the church and then I saw Father Tommy coming to approach me. He waved me over and asked me if I could look at his neck because he said 'I've just been stabbed'," said Melina, one of the parishioners.
A 72-year-old man from Fawkner was arrested and charged with intentionally and recklessly causing injury.
He was bailed to appear in Broadmeadows Magistrates' Court on June 13.
"At this stage, we believe the incident is isolated. There's nothing to suggest he's a danger to anyone else," Detective Senior Constable Rhiannon Norton told reporters.
Catholic Archdiocese of Melbourne spokesman Shane Healy described the incident as "appalling".
"People should never be treated like this. This fellow is doing wonderful work for his parishioners and this is really a blight on the great work that many, many Catholic priests are doing," he said.
Father Tomy Mathew suffered minor upper-body injuries and remains in a stable condition at The Northern Hospital.
Vicar General Monsignor Greg Bennet said the priest was doing well in the hospital and wanted to get back to work soon.