The Government was accused today of trying to engineer a subservient "state-sponsored Islam" after a Cabinet minister warned Muslim groups that they risked losing Government funding if they did not actively tackle the problem of extremism.

Ruth Kelly, the Communities Secretary, used a speech to a Muslim audience in London to call for a "fundamental rebalancing" of the Government’s relations with Muslim organisations.

In it, she pledged the Government’s support to Muslim groups which took on the arguments of radicals, and indicated there would be a "significant shift" in state funding and engagement in favour of organisations which spoke out clearly against extremism.

Ms Kelly was also critical of groups and individuals who chose to boycott commemorations such as Holocaust Memorial Day, although she stressed it was their right to do so.

The Muslim Council of Britain, which has received state grants, has not taken part in the event commemorating the murder of six million Jews by the Nazis, arguing it should be expanded to cover all genocides.

Ms Kelly said: "I do not come here to say that tackling extremists is your problem as Muslims alone. This is a shared problem. It is a shared battle for the kind of society we want to be and the values that we all hold dear.

"But I do say that without you fully on side we will fail. Your voice is more powerful than mine and your actions can be more effective."

The Communities Secretary said that the Government was committed to working in partnerships with Muslim groups who show that they are "determined to take on the extremists and defend values that the vast majority of us share".

She added: "It is not good enough to merely sit on the sidelines or pay lip service to fighting extremism. That is why I want a fundamental rebalancing of our relationship with Muslim organisations from now on.

"In future, I am clear that our strategy of funding and engagement must shift significantly towards those organisations that are taking a proactive leadership role in tackling extremism and defending our shared values.

"It is only by defending our values that we will prevent extremists radicalising future generations of terrorists."

"We will judge them by their words and their actions," she said. "We know Muslim organisations have a particular role they can play. Over time we will support those that stand up for our shared values and not support those who don’t."

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