Tory minister Baroness Warsi says Islamophobia is socially acceptable and has passed the “dinner party test”.
In a speech she is to give today at the University of Leicester, the peer will also warn against describing Muslims as “moderate” or “extremist”.
Baroness Warsi is the first Muslim woman to serve in the Cabinet.
At last year’s Conservative Party conference, she said that Islamophobia was “the last acceptable form of bigotry”.
In 2005, when she unsuccessfully stood as the Tory candidate for Dewsbury, she issued leaflets which used homophobic language.
Her leaflets claimed children were being “propositioned” for gay relationships and criticised Labour for scrapping Section 28 and equalising the age of consent.
Baroness Warsi was criticised by gay rights charity Stonewall who called her “homophobic”.
She later said she regretted the language used and has publicly supported civil partnerships.
In today’s speech, reported by the Daily Telegraph, she will say that calling Muslims moderate or extremist encourages false assumptions.
“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’,” she will say.
“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 burka, the passers-by think: ‘That woman’s either oppressed or is making a political statement’.”
She is also expected to call on Muslims to do more to reject terrorist elements.
“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.”
Baroness Warsi will also reveal that she asked the Pope last year to do more to encourage good relations with Muslims.