The Defence Secretary dismissed Tory claims there was "profound hostility" among servicemen over the decision of the European Court of Human Rights' ruling that four gay former services personnel had been sacked illegally.
He insisted during question time: "Discipline is a key element in ensuring that we continue to have operationally effective forces. That is why we will be underpinning any new policy with a code of conduct which will operate across the three services and will cover personal relationships and sexual behaviour generally."
He added: "We accepted the decision of the European Court of Human Rights in the cases brought by homosexual former members of the armed forces.
"We have set in hand an urgent review of policy in this area in the light of the judgment. I will announce the outcome of that review as soon as possible."
The European Court of Human Rights ruled in September that investigations faced by one female and three male former services personnel had been "exceptionally intrusive" and breached the European Convention on Human Rights.
But Gerald Howarth, the Tory MP for Aldershot, challenged the Defence Secretary: "Given the deep and profound hostility amongst servicemen throughout the country to this ruling and given the Government itself argued vigorously at the European Court of Human Rights that to allow openly homosexual people to join the forces would be deeply damaging to the operational effectiveness of those forces, is your position now that the operational effectiveness of the forces will not be damaged?
"Or, are you prepared to accept that an Albanian and an Austrian and a Lithuanian judge should be entitled to use the right of this House and this elected Government to determine the composition of Her Majesty's armed forces?"
Replying, Mr Hoon said: "This Government intends to uphold the law and in the light of the decision of the European Court of Human Rights, it is clear that we need a revised policy that sustains operational effectiveness and is within the law."
Labour's David Borrow (South Ribble) asked if the Defence Secretary agreed that "homophobic bigotry has no place within Her Majesty's Armed Forces as we near the end of the 20th Century".
"Do you also agree with me that homophobic bigotry should not determine the recruitment policies of the military?"
Mr Hoon replied: "This Government, unlike apparently, certain Members of the Opposition, is determined that we will uphold the law but we will uphold the law in a way that is consistent with the operational effectiveness of our Armed Forces."