It involves a dashing Polish army lieutenant exiled in the US deep south as civil war approaches and the question of who he really loves: the plantation owner's angry niece, Miss Regina, or the tall, blond, rugged officer who arrives suddenly – a handsome man called Eric MacClure.

The television play is heady, emotional stuff tackling issues of race as well as sexuality and that it was broadcast by ITV on a winter's night 54 years ago is nothing short of remarkable. The BFI now believes the newly rediscovered production is the earliest known gay TV drama.

South, adapted by Gerald Savory from an original play by Julien Green and screened on 24 November 1959, "is a milestone" in gay cultural history, said the BFI curator Simon McCallum.

He added that its leading man, Peter Wyngarde, deserved particular praise. "I think you have to give Wyngarde a massive pat on the back in terms of the bravery in taking this role. There were quite bad reactions from some of the press."

They included this breezily offensive review from the Daily Sketch's critic: "I do NOT see anything attractive in the agonies and ecstasies of a pervert, especially in close-up in my living room. This is not prudishness. There are some indecencies in life that are best left covered up."

To be fair, that was the prevailing attitude in Britain with homosexual acts between men still illegal, although the Wolfenden report in 1957 had recommended decriminalisation, something that would not happen until 1967.

Its discovery has taken curators aback because the 1961 film Victim, with Dirk Bogarde as a barrister taking on blackmailers, is normally held up as the milestone for gay representation on film and TV. South, made by Granada, is two years before it.

The film will be seen for the first time in a generation at the BFI's 27th London lesbian and gay film festival on Saturday and Sunday. "For many years it just wasn't known that this film existed other than to a few specialist researchers," said McCallum. "We're so glad to be able to show it at the festival because it's part of all our heritage, really."

South holds up well to a contemporary viewer, exploring universal themes of alienation and otherness. "The play is about north versus south, black versus white, straight versus gay," said McCallum.

There are some extremely moving scenes involving Wyngarde as Lieutenant Jan Wicziewsky, including one where he pours his heart out to the admittedly confused Jimmy, the young son of the plantation owner. "You know, Jimmy, odd times, freedom of will is a crushing weight and it's not always possible to choose. I'm in love Jimmy, as no human being was ever in love before," he says to the bewildered boy. "It's better not to know what men are thinking, it's almost always sad or shameful. I'm not ashamed, but I am alone. Hopelessly alone."

The object of his love is MacClure, a handsome army officer played by Graydon Gould who has just arrived at the plantation. "By today's standards it is all quite implicit, it is not explicit," said McCallum. "But it is pretty extraordinary – it all builds up in this pressure cooker atmosphere with war clouds looming in the background."

The discovery of South was made as part of the BFI's continuing research into the history of gay representation on screen. Researchers are not able to watch everything in the archive and are often alerted by listings in the Radio Times which will hint at something interesting, that there may be a subtext. In this case there was a hint that there was something not quite right about the main character and the fact that he was played by Wyngarde also set bells ringing because we now know he was in a long-term relationship with the actor Alan Bates.

None of that was known at the time, with Wyngarde going on to be a star and housewives' favourite from 1969 as Jason King, an agent in the secretive Department S. With his handlebar moustache, enormous hair and largely unbuttoned shirt, King was the ultimate ladies' man and was one of the inspirations for Mike Myers's Austin Powers nearly 30 years later.

Although it was well-known in the acting world that Wyngarde was gay – he had the nickname Petunia Winegum – it was a closely guarded secret to the general public. "Watching it does remind you how brave he was at the time to take this role and the way the subject is dealt with is incredibly brave," said McCallum.

The discovery was "very exciting" and South becomes the earliest known British gay TV play. Whether it is the first is hard to say since so much of the television output from the 1950s and early 60s does not survive. Often live shows were not recorded or if they were, they were later wiped. "We are incredibly lucky that this one survives."

Given that South was live, it is remarkably slick with only a few stumbles over lines and only one panicked stagehand trying desperately to get out of shot.

After South there was very little gay representation on TV for most of the 1960s with a few notable exceptions. ITV's This Week screened a documentary, Homosexuals, in 1964, followed by Lesbians in 1965. The most significant drama was a BBC Wednesday Play called Horror of Darkness, starring Nicol Williamson and Glenda Jackson, which was made in 1964 but not broadcast until 1965 because of concerns over its gay theme. It was left to British new wave movies to try to break boundaries with films such as Victim, The Servant and The L-Shaped Room.

After the festival screenings, South will become available to watch for nothing from next month at the BFI's mediatheques in Glasgow, Newcastle, Wrexham, Cambridge, Derby and London.