Michael Gove has suffered a "devastating blow" to his flagship free schools policy after a new school in Derby was condemned as dysfunctional in a hard-hitting Ofsted report, the shadow education secretary Tristram Hunt has said.

Speaking in an emergency Commons debate after the Guardian published a leaked copy of the report, Hunt said Ofsted's findings into the Al-Madinah school in Derby showed that Gove's free schools programme was a dangerous ideological experiment.

The report declares that the Islamic school in Derby is in chaos and has "not been adequately monitored or supported". It says teachers at the faith school are inexperienced and have not been provided with proper training.

The shadow education secretary told MPs: "What today's Ofsted report exposes is that the government's free school programme has become a dangerous free-for-all – an out-of-control ideological experiment that has closed a school, leaving 400 children losing an entire week of learning. It is a devastating blow to the education secretary's flagship policy.

"It reveals that pupils have been failed on every possible measure and parents will want to know why the education secretary has allowed this to happen."

Hunt was granted an urgent question by the Commons Speaker, John Bercow, after the Guardian published a leaked copy of the Ofsted report, which shows that teachers were appointed without proper qualifications and that the school was not properly overseen.

Labour believes the report has significance across England because it has highlighted key flaws in Gove's free schools programme. These include the appointment of unqualified teachers and inadequate levels of supervision, because local education authorities have little role in monitoring schools.

Hunt told MPs: "In a city where every child needs to be supported and educated to the highest possible level, the education secretary has sacrificed learning for ideology. It is not just Al-Madinah school which is dysfunctional. It is the education secretary's free schools policy."

The Ofsted inspection, which had been due to take place by the end of the year, was brought forward by two months on the recommendation of the education department after allegations that female teachers were obliged to wear headscarves and pupils were segregated. The school, which has 412 pupils aged between four and 16, closed during the inspection.

The report says pupils are given the same work regardless of their different abilities and that the governing body is ineffective.

The Ofsted report also says boys and girls eat lunch in separate sittings, although it puts this down to the small size of the canteen. Older boys and girls are seated on either side of classrooms, although younger children sit together.

The report concludes: "This school is dysfunctional. The basic systems and processes a school needs to operate well are not in place. The school is in chaos and reliant on the goodwill of an interim principal to prevent it totally collapsing."

David Laws, the education minister who stood in for Gove, who is abroad, told MPs that the government had taken action and had requested the Ofsted report after concerns were raised about the school in the summer. The school opened in September last year.

Laws told MPs: "After a steady start by the school we became aware of potential breaches of the conditions in its funding agreement late this summer. At the end of July we began a wide-ranging investigation into the financial management and governance of the school.

"Our investigations did indeed find significant and numerous breaches of the conditions in its funding agreement. Our concerns were such that we requested Ofsted to bring forward its planned inspection."

Laws added that his ministerial colleague Lord Nash had made clear to the school's trust that it would lose its funding unless it dealt with the concerns raised by the department and in the Ofsted report. "We will not let any school, whether a free school, an academy school or a local authority school, languish in failure. The Ofsted report confirms we are taking the right actions. We are not prepared to allow a school to fail its parents, its children and its community. We said we will take swift action in these cases and that is exactly what we are doing."

Laws accused Hunt of inconsistency because he told the Andrew Marr Show on BBC1 on Sunday that he now favoured free schools. The shadow education secretary told the programme that he favoured parent-led academies that would be different from free schools in three respects: they could only open in areas where there was a shortage of schools places; teachers would have to be qualified; and there would be greater oversight.

Hunt illustrated his final point on Sunday by pointing to Al-Madinah school. He told the Andrew Marr Show: "You're going to have systems of financial accountability, transparency, because what is going on at the Al-Madinah School in Derby is a terrifying example of the mistakes of Michael Gove's education policy. You have had a system which allows essentially financial irregularities, allegations of extremist curriculum, teaching ideas contrary to British values, because there's no oversight there.

"I'm in favour of parent-led academies, which are going to be good parent-led academies and we will keep the good free schools when we get into government. But have no doubt that what we have seen recently is an ideological experiment with our young people and as a result of that, four hundred kids in Derby have been sent home for the week. They have had no schooling because of an ideological experiment by Michael Gove, and that can't be right."