The federal government has axed funding for a controversial Islamic school in South Australia which has been plagued by a financial and governance crisis.

Education Minister Simon Birmingham announced today that his department will no longer fund the Islamic College of South Australia in Adelaide from April 13.

The 600-student school in the suburb of West Croydon has been gripped by a financial crisis, with concerns that federal and state funds were not being spent on education.

Federal education officials had put the school's leadership on notice, saying continued funding depended on its governance being separated from the peak Muslim body - Muslims Australia – also known as the Australian Federation of Islamic Councils.

Senator Birmingham said the school had failed to show transparent governance and had been unable to comply with financial reporting requirements, including the submission of quarterly reports.

"It is disappointing that after the number of chances this school has been given and the constructive work the Department has been doing with the authority since November 2015 the school has still failed to meet the reasonable standards and expectations placed on them," Senator Birmingham said.

He said the government had not taken the decision lightly but was left with no choice but to withdraw funding.

"The school authority is not meeting the strict conditions placed on them in April 2016, which included obligations around improvements to governance and financial management and regular reporting on progress in making the required changes."

The Islamic College of South Australia received $4 million Commonwealth funding in 2016.

The school was told that its financial dealings with the peak Muslim body - Muslims Australia - had to be transparent and above board.

Senator Birmingham said since 2015 there had been a constant turnover of members of the school's board of directors.

"The Australian Education Act 2013 requires, amongst other obligations, that all school authorities operate not-for-profit, be financially viable, be a ‘fit and proper person’," he said.

"There has been a constant turnover of board members at this school since 2015."

Earlier this month, parents voiced their concerns that five directors of the school had links to Muslims Australia, reports The Australian .

Their comments came just days after acting principal Lynda Macleod and chairman Mohammad Abdalla resigned over governance issues.

The move by the Commonwealth followed the decision by the state government this month to end its funding of the school.