Australia's largest Muslim school, Malek Fahd Islamic School, is facing imminent closure after New South Wales Board of Studies inspectors recommended its registration not be renewed in 2014.

ABC News has obtained a letter that NSW Education Minister Adrian Piccoli wrote to the school on Wednesday stating he was "gravely concerned" about the school.

He also said that the board had recommended to him the kindergarten to year 12 school's registration not be renewed in 2014.

Among the Minister's concerns are questions over attendance, Higher School Certificate curriculum, educational quality, safe environment and buildings.

Board of Studies inspectors were at the school this week.

The school has requested an internal review of the board's recommendation.

The board has confirmed to ABC News it is considering whether the school has complied with its registration and accreditation requirements.

The board has only deregistered one school in the past five years.

A recommendation on the school's fate for next year will be made when the NSW Board of Studies meets on December 10.

At present Malek Fahd has "provisional" registration with the board - its registration was downgraded amid revelations last year of financial issues.

The school has more than 2,500 students, including 2,100 at Greenacre in Sydney.

About three-quarters of the independent school's funds come from state and federal government funding.

Principal says school has done its best

This year, the school appointed a Christian principal - Dr Ray Barrett to deal with its issues.

Dr Barrett has a record of turning around troubled schools, including a Muslim school in Canberra.

He is the fourth head at the school in two years, after two former leaders were removed.

Dr Barrett said the letter from Mr Piccoli was a concern but the school had done its best.

"We have made the necessary improvements that were required by the Board of Studies on behalf of the Minister," he said.

"The school has done all that it could possibly do to meet those requirements."

Dr Barrett said the school's issues were mainly related to record keeping.

For example, the school's attendance software did not use the correct codes and staff had not updated occupancy numbers at the Greenacre Campus with the local council.

"We're not an underperforming school by any means. The enrolment lists keep growing," he said.

"The compliance around record keeping... has been found wanting."

The south-western Sydney school - which has campuses at Greenacre, Hoxton Park and Beaumont Hills - has been the subject of numerous media reports in recent years over its financial dealings.

P&F secretary confident issues will be resolved

Malek Fahd Parents and Friends Association secretary Hannah Masri said some parents had raised concerns about ongoing financial and administration issues but were satisfied with the school's response.

She said current and prospective parents were unaware of the school's provisional registration status but were happy with its academic and welfare standards.

"Despite what status it is in, financially or others, it's a really good school," Ms Masri said.

"I brought my kids to this school because of the academic background and moral education. The staff here are all fantastic."

She felt the school may have become a soft target.

"There's other schools that have had their funding frozen as well and there's no focus on them. Being the biggest Islamic school in Australia doesn't mean it's different to any other school.

"I'm confident that the issues will be resolved."

School links to peak Muslim body under investigation

The State Government last year froze the school's funds and asked it to repay $9 million in government grants over allegations the not-for-profit school was funnelling funds back to the Australian Federation of Islamic Councils.

This was allegedly done through "management fees" and backdated rent, which the school has challenged in court.

The federation is Australia's peak Muslim body but a spokesman was unavailable for comment.

The school rents its property from the federation and previously shared board members.

The Australian Securities and Investments Commission (ASIC) is reportedly investigating the school but a commission spokesman said they did not comment on operational matters, including whether they were investigating or not.

The Australian Tax Office is also said to be investigating but was unable to comment.

Dr Barrett said a federal government audit found the school was not operating for profit but a state government audit considered that it did and it was defending the decision in court.

In August, he told parents that a comprehensive audit conducted by KPMG that was to be sent to the federal and state education authorities and to ASIC concluded that during 2012 "the school was not in breach of any regulations".

"This means that the school followed proper accounting standards, government regulations and Corporations Law and should now put to rest any allegations that the school was operating 'for profit' during this period of time," he wrote in the school newsletter.

The Board of Studies provides advice and recommendations to the NSW Education Minister about the registration of private schools - their licence to operate - and accreditation for the Higher School Certificate.

Board registration requirements include corporate governance.

If the school loses its board registration it will not be allowed to operate as a school and not allowed to offer Higher School Certificate Courses.

Federal Education Minister Christopher Pyne said if Malek Fahd lost its registration the Federal Government would withdraw funding.

"Until that time the Commonwealth will continue to provide recurrent grant funding allowing the school to remain open for the 1,800 students and their families," he said.

"I have instructed my department to closely monitor this situation. Should any evidence of fund mismanagement arise we will take immediate action."

It is understood this year's HSC exams will proceed as normal.