Prime Minister Scott Morrison has confirmed he raised the subject of anti-Muslim sentiment at a highly controversial Coalition meeting in 2010, but vehemently denied ever suggesting such sentiment should be exploited for votes.

In a tense and at-times awkward interview with The Project's Waleed Aly on Thursday night, Mr Morrison also acknowledged Islamophobia was a problem in Australia and implied the problem could extend to some individuals in the Liberal Party.

The half-hour, commercial-free TV interview between Scott Morrison and Waleed Aly was tense and awkward at times. Credit:Network 10

However, he would not commit to placing Pauline Hanson's One Nation below Labor and the Greens on Liberal how-to-vote cards at the upcoming election, saying it would be decided by party operatives at a later date.

For the first time, Mr Morrison gave an account of an infamous shadow cabinet discussion in which he was accused of urging colleagues to exploit concerns about Islam eight years ago.