Many people are educated by madrassas across Bangladesh
The British body responsible for overseeing charities has launched a formal inquiry into alleged UK links to an arms haul in Bangladesh.
The weapons cache was found in the south of the country at an Islamic school, or madrassa, allegedly run by a charity based in Manchester.
A spokesperson for the Charity Commission said they were investigating the "very serious" allegations.
There has been no response from the charity, Green Crescent.
Bangladeshi police say the arms were found in the coastal district of Bhola earlier this week. They say the cache included weapons, bomb-making equipment and bullets.
Police say that the madrassa is run by the Green Crescent charity based near Manchester in north-west England. No-one at the charity was available for comment on Wednesday.
The Charity Commission said that the inquiry would focus on "determining the extent of the links" between the charity and the arms haul allegations.
It will aim to find out "whether or not the charity, its funds, or funds raised on its behalf were used unlawfully and the role of the trustees".
The commission's website said that in 2008, Green Crescent had a turnover approaching £70,000 ($102,733).
"We are working with relevant law enforcement and other agencies to investigate the allegation that terrorist activity is connected with the charity," said Charity Commission chief executive Andrew Hind.
"The matter is of serious concern to us, and we are taking this action given the gravity of the matter, the public interest and the need to protect charity work and funds."
He said the results of the inquiry would be made public once it was completed.
Bangladeshi officials say that the madrassa is located on a remote river island only accessible via a drawbridge.
They have described the premises as a "mini-ordnance factory" and said the whole compound was being used for militant training.
A teacher and three employees at the madrassa were arrested on Tuesday, at a time of heightened tension in Bangladesh because of a mutiny last month by border guards which killed 74 people and has been blamed by some in the government on Islamic militants.
The raid on the madrassa was carried out by the country's elite anti-crime force, the Rapid Action Battalion (RAB), who say they found about 12 guns and several thousand bullets.
Police in Bhola say a leading member of the Jamayetul Mujahideen Bangladesh (JMB) extremist group was arrested in the raid along with three other people. They say that they also want to speak to the charity's UK-based owner, who is also believed to be in Bangladesh.
The JMB carried out a series of bombings across the country in 2005 and is blamed by some in the government for last month's mutiny.
Police say that booklets about jihad, or holy war, were found at the school.
A RAB spokesman, Mamunur Rashid, said that the school was opened a few months ago in a remote area of Bhola, about 100km (60 miles) south of Dhaka.
Bangladesh has in recent years been hit by a number of bomb attacks at political rallies, in courts and at cultural venues.
The attacks have mostly been blamed on JMB and other radical groups who are accused of wanting to establish their austere version of Islamic law in a traditionally secular - but overwhelmingly Muslim - country.
Last week Finance Minister AMA Muhith said that the authorities would examine the activities and sources of funding of some Islamic charities approved by the previous alliance government - which contained two Islamic parties.