The boy has been left traumatised by his run-in with social services after he wore a t-shirt which read "I want to be like Abu Bakr al-Siddique" - a major Islamic figure comparable to St Peter in the Christian faith - to his East London school, and is reluctant to go back.
The teachers confused the name with the leader of ISIS Abu Bakr al-Baghdadi, the Daily Express reported.
He was referred to social services under the government's anti-terror prevent strategy, where teachers report suspicious activity suggesting radicalisation.
The mother of the eight-year-old said social services had marked down the incident as a "caution" against her son - despite there being no evidence he had been radicalised.
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"It is time for the government to acknowledge that the Prevent strategy is infringing the human rights of children across the UK, said Yasmine Ahmed, director of Rights Watch UK.
"A strategy that undermines these rights and alienates vulnerable children is counter-productive and inconsistent with the very 'British values' that the Government is supposedly promoting.
"It is time for the Prevent strategy to be abolished," Ahmed added.
The gaffe is not the first time Prevent has targeted children. In March a four-year-old was quizzed under the strategy after he mispronounced the word "cucumber" as "cooker bomb".