Sir Michael Wilshaw, the head of Britain's schools watchdog Ofsted, said "political correctness" of local authority officials in charge of inspecting such schools in their area was to blame.
Ofsted has identified between 150 and 160 of such potentially illegal schools and are working with lawyers to take them to court.
However, it fears the case may be weakened due to the local councils' lack of action.
"When push comes to shove, barristers are saying courts could say the local authorities didn't find anything wrong with these places. They have to see this as a serious problem, identify where these places are and close them down," he said.
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Sir Michael did not name councils but said he was worried that councils in cities such as Birmingham, Bradford and Luton must recognise their duty to safeguard children.
According to the newspaper, not all illegal schools are Muslim schools and unregistered Christian and Jewish schools have also been discovered.
Independent schools offering full-time education must register with the Department for Education and be subject to inspection.
Ultimately a court must decide whether a school is illegal and Ofsted says its approach is getting tougher to ensure safety of youngsters.
There are concerns such schools could be a breeding ground for radical and extremist thinking.
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