Muslim charities could do more to help tackle violent extremism – but they are being stifled by inappropriate action by Government regulators.

The charge was made last week by the head of charity leaders' network ACEVO, Sir Stephen Bubb, who has recently returned from a fact-finding mission to Pakistan to examine the work of Muslim charities there.

At a press conference, Sir Stephen said that Britain's approach to the Islamic charity sector is stifling their potential to help against extremism. He instanced charities which have had their bank accounts frozen because they have not complied with relevant financial and legal standards, as the Government has attempted to crack down on what it fears may be the transmission of funds to jihadists. Sir Stephen argued that this response was disproportionate and failed to take account of situations in war zones and other challenging areas.

After his visit to Pakistan he wrote to David Cameron, Ed Miliband and Nick Clegg saying that the UK's approach to the financial and legal regulation of Islamic charities was not working. The Charity Commission has been accused of adopting an 'unbalanced' approach in its dealings with Islamic charities, which Sir Stephen said was 'regrettable'. He warned that "an over-zealous approach by regulators has exacerbated the difficulties charities already experience from restrictions on their bank accounts. The Charity Commission, in particular, has found itself at loggerheads with many of the organisations it regulates. Regrettably, they are perceived by parts of the charity sector to be biased in their investigatory priorities – and a perception of bias here can be as corrosive as actual bias."

In a statement, Sir Stephen said: "We cannot have an internationally cooperative future without caring about the work of civil society – charities and campaign groups – on the ground around the world. The mission I led to Pakistan was pathbreaking and I hope it will be the first of many.

"Britain needs to fight terrorism with both hands – not with one hand tied behind our back. We need high level strategic security measures but also better understanding of the conditions on the ground that breed or alleviate the threat of extremism. There are serious flaws in our current approach.

"This depends upon sensible, credible, proportionate regulation and a common approach to issues like financial management and banking."

He called on the leaders of major political parties to meet with him, saying that an agenda for the next government had to be agreed. "I have witnessed first hand the difficulties faced by organisations in Pakistan fighting the same battle that we are: for security, for a better way of life and for a better future for our children," he concluded.

Among his suggestions were: achieving a cross-party commitment to recognise the challenges for charities operating in war zones, convening a summit of major banks to review and reform their lending processes for charities operating in such situations, and recognising faith charities' role in promoting community leadership and combating radicalisation and extremism.

A spokeswoman for the Charity Commission said in a statement: "The commission believes it is essential for charities to have banking facilities and has been fully involved in discussions to find a resolution. We are keen to look generally at how it can work with all faith charities, and we have been absolutely clear that we do not have an 'unbalanced' approach to how we work with certain charities."

However, co-director of the Christian think-tank Ekklesia Simon Barrow told Christian Today: "Despite constant official assurances to the contrary, the experience of communities at the sharp end of anti-extremism measures is that they and the Muslim religion are being unfairly targeted and accused of being the enemy.

"Groups or individuals critical of western foreign policy are frequently assumed to be dangerously radical, and charities or human rights groups with even distant links to people suspected by the authorities of nurturing or tolerating extremism are themselves being put under often intolerable pressure."

He instanced Anas Altikriti of the Muslim Association of Britain and Moazzem Begg, founder of Cage, who he said had "worked tirelessly for victims of IS".

"An atmosphere of panic and accusation is being built up behind these instances by tabloid newspapers and some politicians and pressure groups," he said. "All this is feeding distress and anger among young people who feel alienated from both the leaders of their own community and the leaders of the country."

He continued: "What we need instead of an atmosphere of fear, suspicion and harassment is better information, better understanding and better engagement. Also attention to research which suggests that a simplistic 'radicalisation' thesis is at best flawed and at worst misleading."

He also called for a change in UK foreign policy, "moving away from chaotic armed interventionism and towards the development of nonviolent conflict transformation programmes and processes based on political solutions and isolating those who wish to feed violence, war and terror on all sides".

A spokesman for the Muslim Charities Forum said that charities including Islamic Relief had been affected. "There is a perception of bias that Muslim organisations are being targeted which is perpetuated by media reporting on Muslim charities," he said. "It is unhelpful that this kind of reporting contributes to the negativity surrounding charities, when in most cases the authorities are investigating regulatory issues to which all charities are susceptible."

He added: "Since September 2001, a number of regulations have been put in place to counter terrorism. This, in addition to hostility fuelled by prejudiced media allegations and online fabrication, has increased the level of scrutiny and suspicion on Muslim charities and is threatening their very existence. Yet it has not managed to prevent young people from the UK travelling to join ISIS in Syria.

"This situation, together with the difficulties of accessing bank accounts, is certainly playing into the hands of those who want to see more people radicalised rather than really tackle the roots of extremism.

"There are a number of social issues that we have failed to address as a collective. Young people are feeling marginalised and alienated by society, and, as result, can be easily exploited by extremists."