Millions of pounds have been wasted on overseas anti-extremism projects which have failed to produce any security benefits to the UK, the Government will admit today.
Home Secretary Theresa May will concede that money from the £63 million-a-year anti-extremism budget has been given to groups that promote hardline beliefs.
Mrs May will promise to spend more on identifying threats in prisons, universities and the health service as she outlines the Government's revised Prevent strategy, which was originally launched in 2007 to stop the growth of home-grown terrorism.
A final draft of the document seen by The Times says the Government will ensure that no more cash will be given "to organisations that hold extremist views or support terrorist-related activity of any kind".
The document adds that scrutiny of spending has been so poor that it is "possible that Prevent funding has reached extremist groups of which we are not yet aware".
The new strategy will also say a renewed focus on the use of the internet is needed as the Government considers a "national blocking list" of violent and unlawful websites.
Plans will be unveiled to prevent computers in schools, libraries and colleges from accessing unlawful material on the internet.
Mrs May has criticised universities for their "complacency" in tackling Islamic extremism on campus, saying that for too long they have not been sufficiently willing to recognise what was happening.
"We want to explore the potential for violent and unlawful URL lists to be voluntarily incorporated into independent national blocking lists," the new strategy will say.
"Internet filtering across the public estate is essential.
"We want to ensure that users in schools, libraries, colleges and immigration removal centres are unable to access unlawful material."
The Counter Terrorism Internet Referral Unit (CTIRU), which was set up last year to assess and remove internet-based content which may be illegal under UK law, removed material from the internet on 156 occasions over the last 15 months.
But much more needs to be done, the strategy will say.
"We do not yet have a filtering product which has been rolled out comprehensively across Government departments, agencies and statutory organisations and we are unable to determine the extent to which effective filtering is in place in schools and public libraries."
Work with the United States and the European Union to tackle online extremism will also increase.
"The US is by far the biggest provider of internet hosting services in the world, and therefore terrorists have hosted significant amounts of material on servers in the US," the strategy will say.
The Government will also appeal to the online community in the US and their "strong sense of social responsibility" to help tackle the problem.
The revised strategy will say: "The internet has transformed the extent to which terrorist organisations and their sympathisers can radicalise people in this country and overseas.
"It enables a wider range of organisations and individuals to reach a much larger audience with a broader and more dynamic series of messages and narratives.
"It encourages interaction and facilitates recruitment.
"Despite the wealth of information available, people often talk to those whose views are similar to their own, encouraging group thinking and inhibiting external challenge."
While the security services are working to disrupt terrorist operations on the internet, "tackling terrorist use of the internet is as vital to Prevent as it is to Pursue".
The Government has also identified 40 English universities where there could be a "particular risk" or radicalisation or recruitment on campus.
It is understood the document also raises concerns over the Federation of Student Islamic Societies and what is seen as an insufficient willingness to tackle extremism.
Mrs May told the Daily Telegraph: "They need to be prepared to stand up and say that organisations that are extreme or support extremism or have extremist speakers should not be part of their grouping."
The report will also name the 25 boroughs most at risk from Islamist extremism, including areas of London, Birmingham, Leeds, Bradford and Manchester, it was reported.
It is understood about 20 of the organisations which have received funding over the last three years will have their funding cut.
Mrs May launched the review of the Prevent strategy last November, saying it was not working as well as it could be.
The £63 million Government programme was adopted in the wake of the July 7 bombings, and aims to counter militant Islamism by supporting mainstream Muslim groups which offer an alternative to extremism.
But Prevent was criticised by some Muslims who said they feared it was being used to spy on their communities, and by other ethnic groups who believed they were missing out on financial support by comparison.
Among those arrested for terrorism offences who have been linked to British universities is Umar Farouk Abdulmutallab, the so-called "underpants bomber".
He was detained on Christmas Day 2009, accused of trying to blow up a flight from Amsterdam to Detroit.
He graduated a year and a half earlier from University College London, where he was also president of the student Islamic Society.
Daniel Hamilton, director of campaign group Big Brother Watch, said: "We are disappointed to learn today that the Home Office will support a national blocking list.
"In a free society it is up the individual, parents, industry and the community to deal with extremist views online, not the Government.
"The Government should think carefully before adopting web blocking and must not use it as a tool to prevent the viewing of content it simply doesn't like."
Prime Minister David Cameron warned in February that a "doctrine of state multiculturalism" has encouraged different cultures to lead separate lives.
In a controversial speech about the terrorist threat, Mr Cameron criticised the "passive tolerance" of unacceptable practices by non-white communities. He claimed that such an approach had only served to help radicalise young Muslims and urged a new "muscular liberalism" which would promote British values more forcefully.
But Deputy Prime Minister Nick Clegg has said multiculturalism should be the hallmark of "an open, confident society" and called for a stronger assertion of British national identity.