During the funeral -- which was attended by about 300 people, including about 100 members of the country's gay community -- the pastor lashed out at homosexuality, provoking a strong reaction from friends of Kato.
"The world has gone crazy," the pastor told the congregation through a microphone.
"People are turning away from the scriptures. They should turn back, they should abandon what they are doing. You cannot start admiring a fellow man."
Gay activists, wearing T-shirts featuring Kato's face with sleeves coloured with the gay pride flag, then stormed the pulpit and grabbed the microphone.
"It is ungodly," the pastor shouted, before being blocked from sight.
An unidentified female activist then began to shout from the pulpit.
"Who are you to judge others?" she shouted. "We have not come to fight. You are not the judge of us. As long as he's gone to God his creator, who are we to judge Kato?"
Locals intervened on the side of the pastor and scuffles broke out before he was taken away to Kato's father's house to calm the situation.
Villagers then refused to bury the body at which point a group of Kato's friends, most of whom were gay, carried his coffin to the grave and buried it themselves.
Our reporter says hundreds of people - friends, family, colleagues and diplomats - crowded outside Mr Kato's family home in the village of Nakawala in Mukono district, 40km (about 25 miles) from Kampala.
Many members of the lesbian and gay community wore T-shirts with Mr Kato's portrait on the front and the words "La luta continua [the struggle continues]" printed on the back.
They were shocked when the priest (Thomas Musoke) started condemning homosexuals.
"You must repent. Even the animals know the difference between a male and a female," he said, before warning that they would face the fate of residents in Sodom and Gomorrah, the biblical cities destroyed by God.
Gay rights activists then stormed the pulpit and prevented the priest from continuing.
An excommunicated priest who has in the past called for people to respect the rights of homosexuals then presided over the rest of the service.