Australia's largest Islamic school is set to close in two weeks after losing its funding.

Malek Fahd in Sydney's south-west – which has more than 2,400 students – may close its doors permanently at the end of term two, Dr John Bennett, the chairman of the school's board said.

'The school is still solvent, but will not be able to operate as of term three unless the delayed funding from the Commonwealth and the suspended funding from the state is reinstated,' he said in a letter to education authorities, according to the ABC.

Malek Fahd (pictured) in Sydney's south-west is set to close in two weeks after losing funding

The school in Greenacre had about $19 million in annual funding withdrawn by Education Minister Simon Birmingham last year.

The school lost a bid to have the decision overturned in the Administrative Appeals Tribunal in January.

The withdrawal of funding came after issues with financial mismanagement and governance linked to its landowners, the Australian Federation of Islamic Councils (AFIC).

Last month, it was reported the school is embroiled in a legal battle with the AFIC – accusing it of charging inflated rent, payment for services that were never provided and taking out interest-free loans.

The federal government withdrew millions of dollars in funding for Australia's largest Islamic school over concerns the money wasn't being spend on education

Dr Bennett said the school received $3.2 million in federal funding for February and March, but those payments have stopped.

He added $5million in annual state government funding was recently suspended because the government wanted money repaid after the school began operating for profit in 2014 and 2015.

'That's an amount of about $11.5million and the school is just not in a position to refund that money,' he told the ABC.