By Dominic Casciani
Ninety-four local authorities have been given £24m for 2010/11
The government's strategy to prevent violent extremism has stigmatised and alienated Muslims it wants to work with, a committee of MPs has warned.
The communities and local government committee said the Prevent programme was backfiring and it was difficult to know what good it was doing.
Millions have been spent on projects aimed at countering al-Qaeda's threat.
The Department for Communities said it was disappointed the report had not recognised important reforms.
The Prevent programme is a key part of the government's counter-terrorism strategy.
Local authorities hand out funding to local groups they think are best placed to combat al-Qaeda-inspired violent extremism.
£53m spent 2007 - 2010
94 local authorities given £24m for 2010-11
More than 1,000 projects receive Prevent funding
One local council has refused to comply with the target
Some Muslim groups say they will not take Prevent funding
In their report, the MPs said that Prevent had tainted many local projects that would have been otherwise seen as playing an important role in strengthening communities.
Committee chairwoman Dr Phyllis Starkey said: "We agree that a targeted strategy must address the contemporary al-Qaeda-inspired terrorist threat, but we do not believe a government department charged with promoting cohesive communities should take a leading role in this counter-terrorism initiative."
The MPs said the government should shift most of Prevent back to the Home Office, where it started, so that it could be more clearly seen as a crime prevention scheme.
In turn, the Department for Communities could properly devote itself to dealing with the underlying causes of all forms of extremism and division in multi-ethnic Britain, they said.
'Difficult to measure'
Dr Starkey told the BBC that it was very difficult to measure whether any of Prevent's spending was doing any good at all and that many local authorities needed more help in running its programmes.
She said that many Muslims suspected they were being spied upon by Prevent projects and that the government had also sought to engineer a "moderate" Islam by promoting some groups over others.
'CONTEST' COUNTER-TERRORISM STRATEGY
Pursue: Stop terrorist attacks
Prevent: Stop people from becoming terrorists or supporting violent extremism
Protect: Strengthen UK's protection against terror attacks
Prepare: Improve resilience and reduce impact of attacks which cannot be stopped
"The misuse of terms such as 'intelligence gathering' amongst Prevent partners has clearly discredited the programme and fed distrust.
"Information required to manage Prevent has been confused with intelligence gathering undertaken by the police to combat crime and surveillance used by the security services to actively pursue terrorism suspects.
"These allegations of spying under Prevent will retain widespread credibility within some communities until the government commissions an independent investigation into the allegations."
Shortly after taking over the department last year, Communities Secretary John Denham said Prevent had suffered from a "lack of clarity".
He began shifting the emphasis of the entire strategy on extremism, saying that he wanted to see more targeting of the far-right.
A spokesman for the Department for Communities and Local Government said it was disappointed that the report had not reflected these changes.
"The government has made clear that all forms of violent extremism must be tackled and has increased funding to tackle white, racist extremism," said the spokesman.
"Prevent is a crime prevention programme aimed at making it less likely that young people will be drawn in terrorism.
"All Prevent activities are designed to support Muslim communities in resisting those who target their young people.
"Promoting community cohesion remains a government priority in its own right but will not be sufficient on its own to tackle those promoting al-Qaeda-influenced violence."
Shadow communities secretary Caroline Spelman said the report had confirmed "our longstanding concern that there are serious failings in the way the government has used taxpayers' money in this important policy area".
She added: "It's clear that that too much money has been wasted on unfocused and irrelevant projects which have created confusion and increased the risk of alienating the very communities it ought to engage.
"We need a complete review of the Prevent strategy, with an emphasis on removing the confusion between counter-terrorism and cohesion work, shifting the emphasis to funding groups which bring communities together and ensuring compatibility with fundamental rights and freedoms."
Liberal Democrat home affairs spokesman Chris Huhne said: "The Prevent programme alienates and marginalises Muslim communities, and exacerbates racist bias and ignorant views.
"This programme has just prevented a practical solution to tackling violent extremism."