Islamophobia has "passed the dinner-table test" and become widely socially acceptable in Britain, according to Lady Warsi, the Conservative chairman.
Warsi, the first Muslim woman to attend Cabinet, is expected to use a speech at Leicester University today to raise the alarm over the way in which she believes prejudice against Muslims is now seen by many Britons as normal.
She will also warn against the tendency to divide Muslims between "moderates" and "extremists", which she contends can fuel misunderstanding and intolerance.
Warsi is expected to say that terrorist offences committed by a small number of Muslims should not be used to condemn all who follow Islam. But she will also urge Muslim communities to be clearer about their rejection of those who resort to violent extremism.
"Those who commit criminal acts of terrorism in our country need to be dealt with not just by the full force of the law," she will say. "They also should face social rejection and alienation across society and their acts must not be used as an opportunity to tar all Muslims."
On the matter of portraying Muslims as either "moderate" or "extreme", she will say: "It's not a big leap of imagination to predict where the talk of 'moderate' Muslims leads; in the factory, where they've just hired a Muslim worker, the boss says to his employees: 'Not to worry, he's only fairly Muslim'.
"In the school, the kids say: 'The family next door are Muslim but they're not too bad'. And in the road, as a woman walks past wearing a burqa, the passers-by think: 'That woman's either oppressed or is making a political statement'."
The peer will also blame "the patronising, superficial way faith is discussed in certain quarters, including the media" for making Britain a less tolerant place for believers.
Warsi raised the issue of Islamophobia with Pope Benedict XVI during his visit to Britain last year, urging him to "create a better understanding between Europe and its Muslim citizens", according to extracts of the speech obtained by the Daily Telegraph.
