The man heading the government’s review into fostering has warned that “misleading” claims about a white Christian child looked after by mixed-race Muslim foster parents could deter people from ethnic minorities from offering their services, with “disastrous” consequences.

Sir Martin Narey, joint head of the inquiry into foster care provision, said that the furore surrounding the case, which centred on a five-year-old girl in east London who was placed by Tower Hamlets council with foster carers who were not considered a cultural match, could reverse a decade and a half of progress.

“It’s such a great shame that so much anguish was caused and I would be desperately alarmed if it discourages people from all races to come forward to offer to foster,” Narey said. “It would be disastrous if that happened.”

It was claimed that the girl was banned from eating spaghetti carbonara because it contained pork and a cross she wore round her neck was confiscated. It was claimed the carer also encouraged her to learn Arabic. The girl was then placed with a second carer who was said to wear a burqa in public.

Trevor Phillips, a former chair of the equality watchdog, branded the council’s actions “worse than idiotic, and more akin to child abuse”.

But many of the more incendiary claims have been dismissed by the council’s internal inquiries. The Observer understands that the girl was not denied certain types of food for religious reasons and, while a long necklace was removed from her, this was because her carer was worried it posed a safety risk.

Speaking on BBC Radio 4’s Today programme, Andrew Norfolk, the Times reporter who broke the story, said the claims were based on a report by a council employee. However, John Biggs, the mayor of Tower Hamlets, said: “The more sensationalist stories about confiscating bacon or about removing crucifixes were, from all of our investigations, not based in fact.” He added that a court-appointed guardian had judged the “child seemed to be in a settled and happy position”.

Narey said the case could result in “professionals reverting to more cautious race and religious-based decisions when placing children”. This, he suggested, would turn the clock back 15 years to when Department for Education guidance discouraged what were called “trans-racial placements”.

“We’ve made a lot of progress in the past few years in getting practitioners to be more flexible on such placements,” Narey said. “Intuitively you should go for a racial or ethnic match but the research doesn’t suggest it is as remotely important as some people think.” He said a large volume of evidence suggested that the exposure of children to cross-cultural or trans-racial placements did not result in negative outcomes.

The number of foster carers in England has decreased since 2013 and a more intense focus on race and religion would be detrimental to children in care by limiting their potential placements. The Fostering Network says that 7,600 new foster families are needed to meet demand in England where just under 52,000 children were in foster placements at the end of March 2016.

Narey, formerly the government’s adoption tsar, drew comparisons with a shift in adopting culture that led to more children from ethnic minorities being placed with white parents. “We were able to hugely reduce the time that black boys were waiting for adoption,” he said. “They were waiting for so long that lots of them were missing out because there weren’t any black parents.”

Last week a judge, Khatun Sapnara, ruled that the girl could be placed with her maternal grandmother. “All of us would instinctively think if this girl can’t stay with her mum then the very next best place would be with gran,” Narey said. “In my experience that would very often be the case but it’s not always the case. There are a number of serious case reviews that have been taking place over the last year or so about kinship placements that have turned out very badly and children have died. So the council had to spend a few weeks making sure that gran could do this.”

The judge was told that the grandmother, a non-practising Muslim whose first language is not English, now wanted to take the child to live abroad.

The girl was placed with foster carers in March as a result of the police exercising their powers of protection. The mother is understood to have had alcohol and substance abuse issues. Since “no culturally matched foster placement” was available at the time she was placed with a Muslim foster carer. “No one fosters or adopts somebody from a different culture without being given training and preparation on how to cope with that,” Narey said. “There are countless white British foster carers who have been very successfully fostering unaccompanied asylum seeker children from all sorts of nations.”

Last week the director of children’s services at Tower Hamlets met a large number of its foster carers who expressed dismay at the way the affair had been handled.

Narey said boroughs should look beyond their boundaries for suitable foster carers. “In the case of Tower Hamlets there are 30 other boroughs that had carers available. We need to help local authorities look further.”