The Federal Government has axed funding to an Islamic school in Sydney's south-west, saying it failed to address concerns about how the money was being spent.
The Malek Fahd Islamic School, which has several campuses including its largest one in Greenacre, and more than 2,400 students, received $19 million in funding from the Government in the past year.
Education Minister Simon Birmingham said the Government would stop funding the school, starting from April 8, because the money was not being spent only on education.
The decision comes after a review into six school authorities affiliated with the Australian Federation of Islamic Councils (AFIC), after concerns were raised about the group profiting from taxpayer funds distributed to the schools.
"Unfortunately, the authority that operates Malek Fahd Islamic School was not able to demonstrate to my department that they had addressed the significant concerns about their financial management and governance arrangements raised during the formal compliance review of their operations," Mr Birmingham said.
"Last year the department issued a formal compliance notice when it found that the school authority was not complying with fundamental governance, financial and accountability requirements of the Australian Education Act 2013.
"After carefully considering the response to the issues raised in the compliance notice, my department had to make the difficult decision to revoke the funding approval.
"The Act requires, amongst other obligations, that all school authorities operate not-for-profit, be a 'fit and proper person' and ensure that funding provided is used only for school education."
The NSW Department of Education said they would "continue to work with the Commonwealth Department of Education and Training on these matters".
John Quessy the NSW and ACT secretary of the Independent Education Union said the school may have to close.
"We'll need to seek a meeting with the school to find out will they still be operating," Mr Quessy said.
"It's quite a dramatic move, recurrent funding is usually used to pay teacher and staff wages.
"Malek Fahd is quite a big school, we're talking about hundreds of jobs."
He said the union would be seeking urgent discussions with the school about how the teachers would continue to be paid.
"We'll be questioning the ongoing employment of the significant number of members we have at the school," he said.
"I have every expectation the operators of the school will challenge this funding."
A statement from the Department of Education said it was continuing its compliance assessment of another five school authorities affiliated with AFIC, which include the Islamic College of Brisbane, the Islamic College of Melbourne, the Islamic College of South Australia, the Islamic School of Canberra and Langford Islamic College, in Western Australia.
The documents showed that a $1.4 million loan was issued from the Malek Fahd school.