THE Government's plan to establish more single-faith schools suffered a major setback today as a report into this summer's terrifying race riots said the education policy could increase ethnic tensions.

The comments came in a Home Office-sponsored investigation of the violence at Burnley, Bradford and Oldham, which caused damage worth millions of pounds.

The investigation exposed a "polarisation" in Britain that has led to races leading parallel lives.

It proposed that single-faith schools should give a quarter of their places to children of other religions or cultures, to improve links between white and ethnic minority groups and avoid a repeat of this summer's disturbances.

Experts said in their long-awaited review: "A significant problem is posed by existing and future mono-cultural schools, which can add significantly to the separation of communities.

"The development of more faith-based schools may, in some cases, lead to an increase in mono-cultural schools but this problem is not in any way confined to them."

Education Secretary Estelle Morris has said she is committed to allowing more Christian, Islamic and Jewish schools to be built if parents want them, and the plans have the backing of Prime Minister Tony Blair, himself a devout Christian.

Today's report of the Community Cohesion Review Team, chaired by former chief executive of Nottingham City Council Ted Cantle, backed the Government's stance that such schools should be "inclusive".

But it added that faith schools and other schools which happen to be dominated by one ethnic group because of their location should give "at least 25 per cent" of places to youngsters from other backgrounds.

The rules should apply to state and independent schools, added the Cantle Report.

Ted Cantle, the author of the report, as chairman of the Community Cohesion Review Team, was charged with analysing the causes of disturbances across the north of England last year.

He visited the scenes of riots in Oldham, Burnley and Bradford as well as touring Southall, West London, Birmingham, Leicester and Sheffield.

The riots injured more than 100 people and caused millions of pounds worth of damage.

The report highlighted separate education, communal and voluntary organisations, employment, places of worship and cultural activities.

It said: "The team was particularly struck by the depth of polarisation in our towns and cities."