The future of Australia's largest Islamic school is now under a cloud after the Federal Government's decision to revoke its funding was upheld.

Key points: Sydney's Malek Fahd Islamic School has had $19 million in annual funding axed

Sydney's Malek Fahd Islamic School has had $19 million in annual funding axed A tribunal ruled the school was being conducted for profit and was not a proper organisation

A tribunal ruled the school was being conducted for profit and was not a proper organisation The school has several campuses, with more than 2,400 students at Greenacre

Sydney's Malek Fahd Islamic School had $19 million in annual funding axed in February 2016 by Federal Education Minister Simon Birmingham after it was found to be acting as a "for-profit" organisation.

The decision to revoke the funding was referred to the Administrative Appeals Tribunal, which ruled the school was being conducted for profit and was not a fit and proper organisation.

The tribunal's deputy president, Bernard McCabe, said ultimate responsibility laid at the door of its previous management.

"That is a hard outcome for MFISL, and for the students and community it serves," he said.

Mr Birmingham said the Australian Federation of Islamic Councils (AFIC), which owns the school's Greenacre campus, was at fault.

"Australians rightly expect that every taxpayer dollar committed to school education is genuinely expended on school education," he said.

"AFIC needs to take a long, hard look at the way they have handled these matters in relation to this school and indeed others.

"They clearly have not put the interests of teachers, parents and students first."

The Greenacre campus has more than 2,400 students.

School's chairwoman appeals to owners to cut ties

Court matters are currently underway in which the school has been trying to cut ties with AFIC.

A written statement by the school's chairwoman, Miriam Silva, appealed to AFIC to release it from their ownership.

"Our school's future and the welfare of students, teachers and families can immediately be guaranteed if AFIC does the only right thing and turns over the Greenacre campus to Malek Fahd Islamic School," she said.

"The tribunal and the Commonwealth have spelt it out very plainly. It is up to AFIC."

Despite the concerns of the Education Minister and school's chairwoman, AFIC president Keysar Trad denied any responsibility and claimed the school's board was at fault.

"AFIC continues to be the landlord for five other schools that continue to have funding from the minister," he said.

"To turn around and shift the blame to AFIC just shows the level of inability and unfitness of this particular board to run the school."

Mr Trad conceded AFIC was previously "extensively involved" in board member appointment during a period of financial mismanagement, but he said it relinquished such control in March 2016.

'No need for panic by parents or students'

The lawyer for Malek Fahd, Rick Mitry, denied the school continued to operate for profit, and it would be appealing the decision next week.

"It appears that the decision of the AAT laid the blame squarely at the feet of the past board which is unfortunate [as] they didn't address all of the changes made by the current board," he said.

"If the current board hasn't already excised itself from any obligations to AFIC, it certainly was in the process of doing so ... So, I think that those things need to be taken into account."

Mr Mitry said the current board had done everything necessary, including lengthy litigation against AFIC, to comply with all requirements of independence, governance and financial management, and that parents and students should not be worried.

"The board has certainly not switched the lights off, if you like, and they are going about business as usual."

A NSW Department of Education spokesman said nearby schools had the capacity to accommodate additional students should Malek Fahd close.

Chabaan Omran is the father of three children at the school and said parents were "fed up".

He urged AFIC to relinquish its ownership of the land.

"We have full faith in the board. We have full faith in the parents and friends committee," he said.

"But AFIC have got to make the changes required so we as parents can focus on the education of our children."

'Some things stay the same': McCabe

Concerns about Malek Fahd's independence, financial management and governance first came to light in May 2015, when the Federal Education Department initiated a formal review into six schools affiliated with the Australian Federation of Islamic Councils (AFIC).

The Malek Fahd school successfully applied for a stay on the funding revocation in April 2016 until the matter could be heard before the Administrative Appeals Tribunal.

The school received more than $76 million in financial assistance from the Commonwealth between 2012 and 2015.

Around two thirds of the school's income comes from Commonwealth funding and the Tribunal's decision means it may now be forced to close, unless it can obtain funding from other sources.

The Tribunal's Deputy President Bernard McCabe acknowledged the school had already implemented a raft of measures to improve its governance and management, but said they did not go far enough.

"While changes have been made, some things stay the same," he said.

"The totality of the material before me suggests MFISL is still being conducted for profit, and that it will continue to be conducted for profit into the foreseeable future."