Ministers and civil servants will be banned from talking to or funding organisations that undermine “the UK’s system of liberal parliamentary democracy”, under a new definition of extremism criticised by the government’s terror watchdog and Muslim community groups.

Michael Gove, the communities secretary, will tell MPs on Thursday that officials should consider whether a group maintains “public confidence in government” before working with it.

Groups that will be effectively cancelled by ministers for falling foul of the new definition will be named in the coming weeks, government sources said.

There will be no appeals process if a group is labelled as extremist, it is understood, and groups will instead be expected to challenge a ministerial decision in the courts.

The new definition, which will be distributed across government and Whitehall, will say: “Extremism is the promotion or advancement of an ideology based on violence, hatred or intolerance, that aims to: 1 negate or destroy the fundamental rights and freedoms of others; or 2 undermine, overturn or replace the UK’s system of liberal parliamentary democracy and democratic rights; or 3 intentionally create a permissive environment for others to achieve the results in (1) or (2).”

The previous guidelines, published in 2011, said individuals or groups are only defined as extremist if they show “vocal or active opposition to British fundamental values, including democracy, the rule of law, individual liberty and the mutual respect and tolerance of different faiths and beliefs”.

Gove, who has overseen the formulation of the new definition, said it would “ensure that Government does not inadvertently provide a platform to those setting out to subvert democracy and deny other people’s fundamental rights”.

But deep concern was expressed by Jonathan Hall KC, the government’s independent reviewer of state threat legislation who referred to a lack of safeguards and the labelling of people as extremists by “ministerial decree”.

“The definition focuses on ideas, on ideology, not action. So it’s a move from the previous definition … Moving the focus from action to ideology or ideas is an important one because I think people will be entitled to say: ‘What business is it of the government what people think, unless they do something with that?’” he told the Guardian.

“There’s no appeal body and where you have this lack of safeguards, it’s going to be really important to make sure that this labelling does not bleed into other areas.”

“If the government says that someone is an extremist, and is essentially saying ‘You are unacceptable’, then what would stop a local authority, another public body or even a private body from deciding they will adopt it as well?”

The new extremism definition is not statutory and will be used by government departments and officials alongside a new set of engagement principles, a statement from the Department for Levelling Up, Housing and Communities said.

These principles are meant to mitigate the risk of “undertaking engagement that undermines government’s core aims to maintain public confidence in government; uphold democratic values; and protect the rights and freedoms of others.”

A draft version of Gove’s ministerial statement, which has been seen by the Guardian, names several prominent Muslim groups, including MEND (Muslim Engagement and Development), CAGE, Friends of Al Aqsa, 5Pillars and the Muslim Association of Britain (MAB) as “divisive forces within Muslim communities”.

The document, which is entitled ‘Draft ministerial statement – new extremism definition and community engagement principles’, also says there is “serious concern” about the British National Socialist Movement, Patriotic Alternative and Britain First for intimidating minority groups.

It continues: “With this new definition, we will be assessing whether these, and other organisations, meet our definition and will take action as appropriate.”

But departmental sources did not respond to requests for a comment on the document or its contents.

Muslim organisations, including the Muslim Council of Britain, are preparing to take the government to judicial review over its new definition.

Zara Mohammed, secretary general of the MCB, said any of those named were likely to seek judicial review and her organisation might take such legal recourse even if not directly criticised in parliament.

The government has described itself as having a long-term policy of “non-engagement” with the MCB, the UK’s largest umbrella organisation representing 500 mosques, schools and charitable institutions.

She said: “We’d certainly consider [judicial review], definitely. Because the other side of it is, we have been unfairly targeted with the disengagement policy. If we are not considered an extreme group, why are you not engaging with us?”

Sayeeda Warsi, the Tory peer, criticised the move, calling it a “divide and rule approach” intended to “breed division and encourage mistrust”.

The lack of consultation and the vague language used by the government would be at the heart of any legal challenge, it is understood.

The new definition, which comes into force on Thursday, appears to be a watered down version of those proposed in recent government briefings.

Ministers have spent days attempting to complete the proposals amid a cacophony of criticism from high-profile anti-extremist experts, including three former Conservative home secretaries.

People involved in the process said ministers had repeatedly sought advice from different internal lawyers after being advised some proposals would leave ministers open to legal challenge.

The overhaul of the definition follows Rishi Sunak’s impromptu speech in Downing Street on 1 March in which he warned of “forces here at home trying to tear us apart”.

Brendan Cox, the co-founder of t Survivors Against Terror and the widower of Jo Cox MP, welcomed that the announcement did not seem to amount to the “scorched earth policy” that was being briefed to newspapers but he said the process of what happens next would be crucial.

“Unless that process has a high evidential threshold and seeks consensus rom different viewpoints that it could still be weaponised by politicians to suit their own ends.”

“Extremism deserves to be treated seriously and soberly, not used tactically to seek party political advantage

“Sadly the process over the last few weeks has undermined consensus instead of building it – and has left us less united in what should be our common fight against extremists,” he said.