CANBERRA, April 21 - The school has been locked in a funding tug-of-war with the education department for the past 18 months, and after failing to meet various standards and expectations its public cash flow will now cease on July 1.
Education Minister Simon Birmingham said the decision was not taken lightly, but his department was left with no choice.
"It is disappointing that after the number of chances this school has been given and the constructive work the department has been doing with the authority since November 2015, that the school has still failed to meet the standards and expectations placed on them," he said on Friday.
"Australians rightly expect that every taxpayer dollar committed to school education is genuinely expended on school education and for the benefit of students."
The school authority was issued with a notice to revoke its approval in December due to ongoing breaches of the Education Act, to which it responded in February.
On Friday, the education department wrote to the school to say its funding would be cut at the end of term two.
The Islamic School of Canberra received about $1 million in federal funding in both 2015 and 2016.
Mr Birmingham said school governance should be of the highest standard and funding used exclusively for the education and welfare of pupils.
"Our attention now turns to working with the students and their families, the teachers and the whole school community about how we best support them through this difficult time," he said.
The federal government provides the majority of the school's funding, but it is the responsibility of the ACT government to ensure it meets registration requirements.
The Islamic School of Canberra remains registered by the ACT Government and may continue to provide education.
The school authority has 30 days to seek a review of the federal funding cut and has been contacted for comment.