Prison officers at one of Britain's maximum security jails are losing control to Muslim gangs, according to a confidential report obtained by The Observer. An internal review of Whitemoor in Cambridgeshire warns that staff believe a 'serious incident is imminent' as several wings become dominated by Muslim prisoners.

The report, written by the Prison Service's Directorate of High Security, says there is an 'ongoing theme of fear and instability' among staff at Whitemoor, where just under a third of the 500 prisoners are Muslim.

It claims: 'There was much talk around the establishment about "the Muslims". Some staff perceived the situation at Whitemoor had resulted in Muslim prisoners becoming more of a gang than a religious group. The sheer numbers, coupled with a lack of awareness among staff, appeared to be engendering fear and handing control to the prisoners.' The situation has become so acute that white prisoners are routinely warned about the Muslim gangs by staff on arrival.

The report says that apprehension about Muslim prisoners has potentially damaging consequences and is in danger of 'leading to hostility and Islamophobia'. It serves to highlight the growing concern about extremist activity in the UK's jails. The Home Office is concerned that young male prisoners are being radicalised by Muslim gangs and that the prison system is becoming a recruiting ground for al-Qaeda sympathisers. Similar problems have been experienced at Belmarsh prison in London and Frankland in Durham. A number of high-profile al-Qaeda sympathisers at Frankland have been moved as a result of increased tensions within the jail.

Frances Crook, director of the Howard League for Penal Reform, said she was alarmed at the report's findings. 'The difficulties of running a high-security prison such as Whitemoor cannot be underestimated, but much of what this internal report uncovers is extremely disturbing,' she said. 'It is vital that the problems uncovered at Whitemoor are addressed as a matter of urgency.'

The report was commissioned partly as a response to the deaths of five prisoners at the jail within 12 months. Muslim prisoner support groups have also complained that Muslims are suffering harassment from staff. Recently a number of Whitemoor staff have been suspended on unrelated corruption charges.

The tense stand-off between staff and prisoners is causing problems, the report warns. 'Staff appeared reluctant to challenge inappropriate behaviour, in particular among BME [black and ethnic minority] prisoners for fear of doing the wrong thing,' the report states. 'This was leading to a general feeling of a lack of control and shifting the power dynamic towards prisoners.' It adds: 'A wing itself felt particularly unstable with a general lack of confidence among staff.'

The emergence of gang culture in Whitemoor has alarmed some prisoners. The team that compiled the report found that over the Christmas period the segregation unit was full as inmates sought refuge from the gangs over debt problems and drugs.

Henry Bellingham, the Conservatives' shadow justice minister, who has raised concerns about the running of Whitemoor in parliament, said he welcomed the report. 'However, I'm very concerned about some of the findings,' he added. 'They point to a systematic breakdown in the chain of command. It's in everyone's interests that these problems are sorted out soon. Whitemoor holds some of the most dangerous prisoners in the country.'

In recent months the Prison Service has unveiled a series of initiatives to combat extremism in the UK's jails through the supervision and monitoring of imams and better training for staff. 'It is vital that prison staff are equipped with the knowledge and skills to ensure they have the confidence to identify and challenge behaviour that is of concern,' said a spokeswoman for the Ministry of Justice. 'A programme of work is planned at Whitemoor to increase mutual understanding between staff and prisoners, including a development day for staff on the Muslim faith, focus groups in which staff and ethnic minority prisoners will discuss prison community issues, and diversity events.

'The prison will continue to work closely with the Prison Service's Extremism Unit and the police to monitor and assess issues around extremism, and work will be undertaken to examine the management of gangs and terrorist prisoners within the prison.'