The government is engaged in an ideological battle for the hearts and minds of Muslims in its fight against terrorism, to the extent of ending funding for private religious schools, Defence Minister Najib Razak said today.

The schools were being "penetrated by extreme elements, inculcating hatred and intolerance," Najib told a conference on the strategic outlook for Malaysia.

The terrorist threat came from "a regional nexus of groups that share a common goal of establishing Taliban-theocratic type states all over the region, in countries that have large Muslim communities," he said.

"We must stop the supply chain, to fight the ideological battle and to convince Muslims to take the moderate path and not succumb and be mesmerised by extreme and deviant teachings."

Malaysia has in the past 18 months arrested more than 70 Islamic extremists, many of them allegedly members of the al-Qaeda linked Jemaah Islamiah group accused of responsibility for the Bali blast in Indonesia last October which killed nearly 200 people.