Malek Fahd Islamic School in western Sydney has had its federal funding restored after a series of drawn-out legal battles with federal and NSW governments and its founding organisation nearly led to the school closing its doors on two occasions.

Federal funding totalling nearly $19 million per year will be restored to the private school after it replaced its entire board and negotiated a new rent arrangement with its founder, the Australian Federation of Islamic Councils, after allegations that AFIC was charging the school inflated rent.

Malek Fahd's chairman John Bennett says the federal government decision to restore funding gives the school and its 2500 pupils 'certainty about its future'. Credit:Nic Walker

"The Department has advised that [Malek Fahd] has rectified all issues relating to the management of the school," Federal Education Minister Dan Tehan said in a statement.

It is understood that the school is still working to resolve similar issues with the NSW government, which contributes state funding of about $5.7 million, around whether it is operating for-profit.