Can I list an educational paper in my publications? I have published a paper in Journal of Chemical Education by my supervisor. This is about a teaching approach for an undergraduate course. The paper was peer-reviewed and we spent more time on it than a research paper.

In my CV (I am applying for a faculty position), the list of publications is normally peer-reviewed research articles. Can I add this paper to the same list or it is better to create a separate section in my CV?

My worry is that this may undermine the entire list that some of other papers are not based on cutting-edge research.
It is very simple: everything that is published is a publication. However, some authors choose to only list peer-reviewed publications. In both cases your educational paper qualifies.

Of course you are free to list certain types of publications in separate sections on your CV if you think it is better. How that is viewed depends on the person reading the CV. For what it's worth: in my opinion any list of publications has papers that are better than others even if it is all original research. There is no reason to list it separately.