Harmful myths and lies about Muslims are now believed by a large section of the UK's population, contributing to discrimination across employment, housing, the criminal justice system and other areas of public life, a new report by MPs has found.

The All Party Parliamentary Group (APPG) on British Muslims found that “prevalent” Islamophobia was driving division, hate crime and even terror attacks.

“British society at large, by virtue of normalised prejudice against Muslim beliefs and practice, have come to imbibe a panoply of falsehoods or misrepresentations and discriminatory outlooks,” its report said.

"Academic research has consistently shown that British Muslims face considerably high levels of economic disadvantage than other groups in Britain."

While a report by market research company Ipsos Mori found that the majority of Muslims believe Islam is compatible with the British way of life, a separate survey of the wider population by polling firm YouGov, found that 46 per cent thought there was a “fundamental clash between Islam and the values of British society”.

A separate study recently found almost a third of British people believe the myth of “no-go zones” where non-Muslims cannot enter, while the MPs took aim at false and misleading news stories.

They include the “Winterval” myth that claimed Christmas celebrations were being suppressed and a story that wrongly interpreted research to say one fifth of British Muslims had “sympathy for jihadis”.

MPs said that corrections published by newspapers “pale in comparison to the damage done to perceptions of Muslims in British society”.

Religious hate crime rises 40% in England and Wales - with more than half directed at Muslims

A report concluded that Islamophobia has far surpassed the “dinner table test” espoused by Baroness Sayeeda Warsi in 2011 and is now prevalent in society.

MPs said that because there is no commonly agreed definition of Islamophobia, it has been allowed to “increase in society to devastating effect”.

“The detectable shift from overt to subtler or respectable, manifestations of Islamophobia - the normalisation of the prejudice to the extent it is rendered almost invisible to many - warrants a definition that can arrest and reverse its present trajectory,” their report said.

“There has been no attempt to adopt a definition of Islamophobia by government despite recognising the significant impact the problem has on British Muslim communities.”

After a six-month inquiry taking evidence from Muslim organisations, legal experts, academics, MPs and other groups, the APPG called on the government to adopt the definition: “Islamophobia is rooted in racism and is a type of racism that targets expressions of Muslimness or perceived Muslimness.”

Anticipating criticism from far-right and populist groups, MPs said the definition did not aim to curtail free speech or criticism of Islam as a religion.

“From hate crimes motivated by anti-Muslim feeling, buttressed by stereotypes and racist caricatures prevalent in social and media discourse, to policies which perpetuate discriminatory outcomes for Muslims, a definition of Islamophobia is vital,” the APPG concluded.

MPs highlighted terror attacks and plots targeting Muslims, including the Finsbury Park attack and the attempted murder of a Sikh dentist in Wales.

They said that rising hate crimes had affected both Muslims and those wrongly thought to be part of the religion because of their appearance, including an Italian man who was badly beaten in London.

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The APPG cited research showing that Muslims are disadvantaged across employment, housing, education, the criminal justice system, social and public life and in political or media discourse.

Its report warned that Islamophobia also increased feeling of disengagement, disenfranchisement and disaffection with the state.

Wes Streeting MP, co-chair of the APPG for British Muslims and Labour MP for Ilford North, said: “Islamophobia is a form of racism and it is growing in our society. To tackle it, Islamophobia must be accurately and fully defined and that’s why this inquiry centred around the discussion on a working definition.”

“This landmark report brings about a working definition of Islamophobia for the first time, which will allow us to tackle this prejudice head-on. The adoption of this definition by political parties, statutory agencies and civil society organisations will allow us to turn a corner to move forward towards a fairer society.”

Anna Soubry MP, co-chair of the APPG for British Muslims and Conservative MP for Broxtowe, said Islamophobia was a “very real problem” throughout the UK.

“Muslims or people assumed to be Muslims are subjected to abuse, discrimination and criminal acts against them for no other reason than their faith or perceived faith,” she added. “It is equally obvious that overwhelmingly Islamophobia is rooted in racism and therefore is, racist. This definition recognises this truth and I hope it will now enable the serious work that needs to be done to tackle Islamophobia.”

A government spokesperson said: “We remain deeply concerned at hatred directed against British Muslims and others because of their faith or heritage. This is utterly unacceptable and does not reflect the values of our country.

“We know that some have suggested establishing a definition of Islamophobia could strengthen efforts to confront bigotry and division. Any such approach would need to be considered carefully to ensure that this would have the positive effect intended.