A leaked report alleges the Australian Federation of Islamic Councils is artificially inflating rents to milk federal and state government funds from the popular Malek Fahd school in western Sydney, possibly contrary to government rules.

The report obtained by The Weekend Australian says AFIC, which advises the Howard Government on Islamic issues, should seek legal advice about the $900,000 in rent it charges the school a year - up to four times more than average commercial rates.

The private school, which receives more public funds than any other in NSW, is situated on land owned by AFIC. While it operates as a separate non-profit organisation, it has four AFIC executives or office holders on its governing board.

AFIC charges the school rent, accounting fees, cleaning costs and other charges which provide two-thirds of AFIC's budget of more than $2 million a year.

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