Labor's Maria Vamvakinou describes this as a myth and a ''fault line'' in the community, along with the perception that Muslims do not want to integrate with mainstream Australia.

She also wants migrants to be described by their ethnic origin as opposed to faith, to overcome the trend of grouping all migrants from Afghanistan or Iraq as Muslims.

The Joint Standing Committee on Migration has uncovered wide-spread prejudice against Muslims in its inquiry into multiculturalism.

It is to report to parliament within weeks and comes after the row over the proposed Gungahlin mosque.

Ms Vamvakinou said many of the 500 submissions were against Muslims.

''They range from saying multiculturalism works, down to saying Islam is a problem,'' she told The Canberra Times. ''We have identified that it is a perception about Muslim Australians.

''At the final public hearing, we had people saying Islam is a problem and there is a Muslim conspiracy to take over the country and impose Sharia law.

''The fault line here was the perception that Muslim community can't and does not want to integrate … a lot of the submissions say that.

''We wanted to debunk some of the myths about multiculturalism, it does not mean Sharia law in Australia. It's time we went back to describing people by their ethnic origin as opposed to their faith, we've got to change our language.'' The Australian Federation of Islamic Councils told the inquiry that Muslims should be allowed to marry, divorce and conduct financial transactions under the principles of Sharia law.

Then council president Ikebal Patel said all Australians would benefit if Islamic laws were adopted as mainstream legislation but agreed the word sharia could invoke notions of a male-dominated legal code.

Ms Vamvakinou said the committee decided, before the finalisation of its report, that it would not recommend legal pluralism.

''The majority of the Muslim community never asked for Sharia law and I know they have never sought it,'' she said. ''We do not see the need for the implementation of Sharia law as part of accommodating cultural sensitivities.''

Ms Vamvakinou welcomed the recent formation of the Migration Council of Australia.

The committee is working towards recommending an organisation be established to replace the Bureau of Immigration Research which was abolished by the Howard government.

The committee members were frustrated at the lack of research and collection of data about migrants.

''We recognised there was a gap there, everyone saw this,'' Ms Vamvakinou said. ''For example, can someone scientifically explain to me the over-qualified taxi driver syndrome.

''Everybody talks about it, that the taxi drivers have PhDs but they can't get jobs. If so, what is that costing us?''