David Cameron launched a devastating attack today on 30 years of multiculturalism in Britain, warning it is fostering extremist ideology and directly contributing to home-grown Islamic terrorism.

Signalling a radical departure from the strategies of previous governments, Mr Cameron said that Britain must adopt a policy of "muscular liberalism" to enforce the values of equality, law and freedom of speech across all parts of society.

He warned Muslim groups that if they fail to endorse women's rights or promote integration, they will lose all government funding. All immigrants to Britain must speak English and schools will be expected to teach the country's common culture.

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The new policy was outlined today in a speech to an international security conference in Munich and will form the basis of the Government's new anti-terrorism strategy to be published later this year.

But his remarks have already infuriated Muslim groups, as they come on the day of what is expected to be the largest demonstration so far of anti-Muslim sentiment being planned by the English Defence League. They accused Mr Cameron of placing an unfair onus on minority communities to integrate, while failing to emphasise how the wider community can help immigrants feel more welcome in Britain. They suggested his speech was part of a concerted attack on multiculturalism from centre-right European governments and pointed out he was making it in Germany – where Chancellor Angela Merkel recently made a similar attack.

In his speech, Mr Cameron rejected suggestions that a change in Western foreign policy could stop the Islamic terrorist threat and says Britain needs to tackle the home-grown causes of extremist ideology. "We have failed to provide a vision of society [to young Muslims] to which they feel they want to belong," he said. "We have even tolerated segregated communities behaving in ways that run counter to our values. All this leaves some young Muslims feeling rootless. And the search for something to belong to and believe in can lead them to extremist ideology."

Mr Cameron blamed a doctrine of "state multiculturalism" which encourages different cultures to live separate lives. This, he says, has led to the "failure of some to confront the horrors of forced marriage". But he added it is also the root cause of radicalisation which can lead to terrorism.

"As evidence emerges about the backgrounds of those convicted of terrorist offences, it is clear that many of them were initially influenced by what some have called 'non-violent extremists' and then took those radical beliefs to the next level by embracing violence. This is an indictment of our approach to these issues in the past. And if we are to defeat this threat, I believe it's time to turn the page on the failed policies of the past.

"Instead of ignoring this extremist ideology, we – as governments and societies – have got to confront it. Instead of encouraging people to live apart, we need a clear sense of shared national identity, open to everyone."

Mr Cameron went on to suggest a radically new government approach which Downing Street said would form the basis of a review of the "Prevent Strategy", launched under Labour in 2007. "We need to think much harder about who it's in the public interest to work with," he said. "Some organisations that seek to present themselves as a gateway to the Muslim community are showered with public money despite doing little to combat extremism. This is like turning to a right-wing fascist party to fight a violent white supremacist movement."

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He adds, that in future, only organisations which believe in universal human rights – particularly for women – and promote integration will be supported with public money. "Frankly, we need a lot less of the passive tolerance of recent years and much more active, muscular liberalism," he will say.

But Muslim groups said Mr Cameron's approach was simplistic and would not succeed in tackling extremism. "Communities are not static entities and there are those who see being British as their identity and there are those who do not feel that it is an overriding part of their identity," said Fiyaz Mughal, founder of interfaith group Faith Matters. "Finger-pointing at communities and then cutting social investment into projects is a sure-fire way of causing greater resentment. It blames some communities while his Government slashes social investment."

Inayat Bunglawala, chairman of Muslims4UK, described the speech as "deeply patronising". He said: "The overwhelming majority of UK Muslims are proud to be British and are appalled by the antics of a tiny group of extremists."

In its latest annual survey of immigration attitudes, the German Marshall Fund found that 23 per cent of Britons believed immigration was the country's largest problem. In Canada and the US, where the number of foreign-born people is considerably higher, the figure is closer to 10 per cent.

* Mohammed Shafiq, chief executive of Muslim youth group The Ramadhan Foundation, said: "The speech by British Prime Minister David Cameron MP fails to tackle the stooge of the fascists EDL and the BNP. Singling out Muslims as he has done feeds the hysteria and paranoia about Islam and Muslims.

"British Muslims abhor terrorism and extremism and we have worked hard to eradicate this evil from our country but to suggest that we do not sign up to the values of tolerance, respect and freedom is deeply offensive and incorrect.

"Multiculturalism is about understanding each others faiths and cultures whilst being proud of our British citizenship - it would help if politicians stopped pandering to the agenda of the BNP and the fascist EDL.

"On the day we see fascists marching in Luton we have seen no similar condemnation or leadership shown from the Government. Only when we see true action on the fascists will confidence be restored in our politics.

"Politicians should be working to bring communities together not ripping them apart.

"This sort of rhetoric to score cheap political points will damage community relations in the long term and affect our efforts to deal with terrorism and extremism."

Dr Faisal Hanjra, assistant secretary general of the Muslim Council of Britain, described Mr Cameron's speech as "disappointing".

"We were hoping that with the new Government, the coalition, there would be a change of emphasis in terms of counter-terrorism and dealing with the problem at hand," he told BBC Radio 4's Today programme.

He said he supported the Prime Minister's comments about learning English and the need for a more coherent national identity.

But he went on: "In terms of the approach to tackling terrorism, though, it doesn't seem to be particularly new - it wasn't so long ago that the Labour government was telling Muslim parents to look out for your young children and make sure you tell us if they are becoming radicalised.

"Again, it seems very much that the Muslim community is in the spotlight and being treated as part of the problem rather than part of the solution."

Cameron's rules

What he said

"Young white men are told, 'The blacks are all criminals. Young Afro-Caribbean men are told, 'The Asian shopkeepers are ripping you off'. Young Muslim men are told, 'The British want to destroy Islam'. The best answer to ignorance like this is a good education. We've got to make sure that people learn English, and we've got to make sure that kids are taught British history properly at school." 29 January 2007

"We wouldn't be half the country we are without immigration. But you can't have a situation where a country doesn't know – and can't control – who is coming in and out, and who is settling here. The government needs to be in control of the situation." 29 January 2007

"For too long we've caved in to more extreme elements by hiding under the cloak of cultural sensitivity. For too long we've given in to the loudest voices from each community, without listening to what the majority want. And for too long, we've come to ignore differences – even if they fly in the face of human rights, notions of equality and child protection – with a hapless shrug of the shoulders, saying, 'It's their culture isn't it? Let them do what they want'." 26 February 2008

"Whether it's making sure that imams coming over to this country can speak English properly, whether it's making sure we deradicalise our universities, I think we do have to take a range of further steps and I'm going to be working hard to make sure that we do this. Yes, we have got to have the policing in place, yes, we've got to make sure we invest in our intelligence services, yes, we've got to co-operate with other countries. But we've also got to ask why it is that so many young men in our own country get radicalised in this completely unacceptable way." 15 December 2010