The first free school for Muslims in the country will open in Blackburn, Lancashire, next year.
The business case for Tauheedul Islam Boys' School in Darwen has been approved by the Government.
But opponents have described the decision as 'extremely bad news' for community cohesion and claim it will deprive state schools of vital funds.
Simon Jones, national executive member for the National Union of Teachers, and Blackburn with Darwen representative, said: 'It will further undermine much of the progress towards community cohesion. We are on our way to a completely segregated schooling system. It is going to develop potential social problems in the future.