The prime minister has announced that the government is to spend millions on funding anti-extremism projects in communities and tackling online attempts to radicalise the vulnerable, in a sign of growing concern at the threat from domestic terrorism.

Despite having in 2011 scaled down a similar scheme run by Labour, the government will invest £5m this year, and more in coming years, to build a national network of grassroots organisations to challenge all forms of extremist ideology.

Downing Street said the new funding would be dedicated to providing direct support to groups to expand the reach and scale of their work to confront extremism. Projects will include social media training and technical assistance to enable small charities to set up websites. The government also wants to replicate the methods used by police in taking down images of child abuse.

Officials said there had been a big change over the past 18 months in the way that extremists used the internet to target young minds. According to recent research from the Quilliam Foundation, the counter-extremism thinktank, Islamic State’s high-quality propaganda is disseminated widely by a network of supporters and sympathisers worldwide. Extremists are also increasingly using the internet to inspire radicalisers to groom new recruits through online peer-to-peer relationships.

David Cameron, who will launch the government’s wider counter-extremism strategy on Monday, said: “We need to systematically confront and challenge extremism and the ideologies that underpin it, exposing the lies and the destructive consequences it leaves in its wake. We have to stop it at the start – stop this seed of hatred even being planted in people’s minds and cut off the oxygen it needs to grow.

“Tomorrow, I will be launching the counter-extremism strategy. It sets out our new approach to tackle this poison: to vigorously counter the ideology that underpins it; to take on the violent and non-violent parts of the creed; actively supporting the mainstream voices to rise above those of the extremists; and tackle the segregation and feelings of alienation that can help provide fertile ground for extremist messages to take root.

“At the core is building a national coalition of all those individuals and groups who are united in their determination to defeat extremism and build a more cohesive society.

“We will do everything we can to support them – though my new Community Engagement Forum and with practical support and funding to tackle these deep-rooted issues. The scale of the task is immense and that is why we need everyone to play their part.”

The government cut Labour’s Prevent scheme because it was claimed that funding was reaching groups with extremist views, albeit not involved in violence. A Downing Street source insisted that new money did not represent a U-turn, and that there had been genuine problems with the old system.

Officials said a major part of the new strategy would be developing a partnership between industry, police and government to remove terrorist and extremist material online.

The Metropolitan police’s Counter-terrorism Internet Referral Unit has now removed more than 110,000 pieces of extremist propaganda since 2010, and more than 38,000 pieces so far this year, with referrals from the public up 400% between end of 2013-14 and 2014-15.