The internet now plays a part in most, if not all, cases of violent radicalisation and is a more significant recruiting ground than prisons, universities or places of worship, according to report by a cross-party group of MPs published today.

The Commons home affairs committee says internet service providers need to be as effective at removing material that promotes violent extremism as they are in removing content that is sexual or breaches copyright.

The committee discloses that a new Home Office counter-terrorism internet referral unit has received 2,025 complaints since it was set up in 2010. About 10% of the offending websites or web pages have been taken down as a result.

But the MPs say far more needs to be done, including more action to take down extremist videos and a new code of practice to draw the line on material promoting violent extremism.

The MPs' focus on the influence of the internet comes as judges prepare to sentence this week the four men found guilty of plotting a pre-Christmas terrorist attack on the London stock exchange after being inspired by the radical preacher Anwar al-Awlaki.

The nine-month inquiry found that the internet played a greater role in violent radicalisation than prisons, universities or places of worship and was now "one of the few unregulated spaces where radicalisation is able to take place".

The report stresses, however, that no single pathway leads to radicalisation and emphasises that direct, personal contact is also significant. It adds that although convicted terrorists have attended British universities and prisons there is seldom evidence that they were radicalised there. The report says recruitment activities have retreated to private homes as the authorities have targeted public arenas.

The MPs, however, heard in private an assessment from Charles Farr, the Home Office's head of the Office of Security and Counter-terrorism, that "sympathy for violent extremism is declining rather than increasing". The MPs contrast this with the situation in 2007 when MI5 said there were "at least 2,000 people" in the UK who posed a threat because they supported terrorism – a figure that had increased by 400 the previous year.

The MPs do conclude that there may be growing support for nonviolent extremism within the Muslim community, fed by feelings of alienation and a sense of grievance, and this is a challenge for society and the police.

They recommend that tackling Islamophobia and demonstrating that the British state is not antithetical to Islam should constitute a big part of the official Prevent strategy designed to counter the ideology that feeds violent radicalisation.

The MPs talked to the radical preacher Abu Hamza in the maximum security unit at Belmarsh prison in London, who told them the main drivers of radicalisation were grievances, especially concerning Palestine and Afghanistan, a sense that the prophet was being mocked, guilt and capability.

He said unemployment was not a source of grievance.

Keith Vaz MP, the committee's Labour chairman, said: "The conviction last week of four men from London and Cardiff radicalised over the internet, for a plot to bomb the London stock exchange and launch a Mumbai-style atrocity on the streets of London, shows that we cannot let our vigilance slip. More resources need to be directed to these threats and to preventing radicalisation through the internet and in private spaces. These are the fertile breeding grounds for terrorism."