Australia's largest Islamic school has had its funding permanently restored by new federal Education Minister Dan Tehan, after several years of court battles.

The Malek Fahd Islamic School's future hung in the balance after a full bench of the Federal Court dismissed an appeal against its $19 million federal funding cut earlier this year.

Former federal education minister Simon Birmingham cut the school's funding in 2016, saying it had several governance issues and was operating at a profit.

However, major reforms have occurred to bring the school, which has about 2,500 kindergarten to Year-12 students, in line with education department rules.

Mr Fahd's school board took Mr Birmingham's decision to the Administrative Appeals Tribunal, and the Federal Court.

The school's largest campus is in Greenacre, on land owned by the Australian Federation of Islamic Councils (AFIC).

"The approval has been given subject to the board meeting numerous conditions and following a robust and rigorous assessment process," Mr Tehan said.

He added that the Australian Government would not tolerate the misuse of taxpayer dollars intended for schools.

"All school authorities must meet the requirements of the Education Act to ensure taxpayer dollars, as well as any private investment by parents, is spent to benefit Australian students," he said.

"To remain an approved authority, the Malek Fahd Islamic School must ensure the board is demonstrably independent of the Australian Federation of Islamic Councils, along with several other conditions."