Urgent government action is needed to tackle Islamaphobia and "institutional disadvantages" suffered by Britain's Muslim community, MPs said.

Earlier this month a major report warned persistent and untackled Islamaphobia was creating a disaffected underclass and could lead to "time-bombs" of backlash and bitterness.

The Commission on British Muslims and Islamaphobia think-tank called for implementation of 60 recommendations to end anti-Muslim prejudice identified in its first report.

Opening a Westminster Hall debate, Labour's Karen Buck (Regent's Park and Kensington N) said, "Muslims in Britain are now at the sharp end of race hatred and xenophobia."

The Muslim Council of Britain has recently described this as a "relentless increase" in hostility towards Islam and British Muslims.

"I'll venture that one of the reasons this is so is the extent to which Islam, asylum and immigration and terror have become so conflated in the public mind."

There was a "strong perception" among many British Muslims that the international situation was revealing them to be second-class world citizens, Ms Buck said.

She outlined a number of "institutional disadvantages" in education, work and housing.

Research showed 75% of Pakistani and Bangladeshi households were living in poverty and 35% of Muslim children were in workless homes.

She added that 42% of children were in overcrowded accommodation, warning it was a "chronic and growing" problem.

The Government should prioritise tackling racial discrimination in service delivery and combat institutional disadvantages in social and economic policy, she said.

Labour's Andrew Dismore (Hendon) agreed urgent action was needed to tackle child poverty and appalling housing conditions in the Muslim community.

"It is not surprising that we create dissatisfaction in which Islamic extremism can flourish and find recruits," he said.

For Liberal Democrats, Sarah Teather said the number one issue for Muslims in her Brent East constituency raised was anti-terror legislation.

Many believed this was a direct attack on Muslims, she warned.

Searches of people suspected of terrorism had risen by more than 200% since 2001/02, but the Home Office was not conducting any ethnic monitoring of this.

Ms Teather said imprisonment without trial of terror suspects at Belmarsh prison in South London had also provoked widespread anger.

Tim Boswell, for Tories, highlighted the importance of education in enabling people from disadvantaged communities to work their way up the system.

Race Equality Minister Fiona MacTaggart said the Government was consulting on its race equality strategy.

"I promise you that when we produce it that the solutions to these things will be underpinned by clear levers for delivery," she added.

Ambitions must be turned into reality with practical measures such as allowing police officers to wear turbans or providing prayer rooms in prisons.

Ms MacTaggart acknowledged: "It is true that the Muslim communities, particularly in our inner cities have experienced larger discrimination and disadvantage than other groups in the community."

Disproportionality in stop and search must be reduced, she agreed. Advice was being circulated to police on this and monitoring would be in place shortly.

Progress had been made on tackling religious discrimination, but there was still debate about how much it contributed to the disadvantage experienced by ethnic minorities.

The Crown Prosecution Service was showing more eagerness to prosecute on these grounds, she added.

Ms MacTaggart also told MPs that six state-funded Muslim schools had been approved.