The release on bail of Islamic political activist Raed Salah threatens the Home Office's revised counter-extremism strategy and puts the government at risk of ridicule, according to the Community Security Trust.
Sheikh Salah, the leader of the northern branch of the Islamic Movement in Israel, was detained in London last month after allegedly flouting a ban - imposed by Home Secretary Theresa May - on his entering the country.
A CST spokesman said the case would now provide "a crucial test" for the government. He said: "Having been seriously undermined by immigration system failures, it now risks ridicule if the Home Office lawyers cannot properly present the case against him."
Board of Deputies chief executive Jon Benjamin said: "Raed Salah was supposed to be excluded, but wasn't. Fighting his case here may well give him an advantage that he would not otherwise have had, which just confirms the importance of better co-ordination [between the Home Office and Border Agency] in the first place."
Sheikh Salah is now expected to remain in the country until his full deportation case is heard. That is unlikely to take place until September.
Mrs May has already launched an investigation into the circumstances that allowed him to enter Britain through Heathrow Airport despite being on an excluded list. It emerged last week that after a computer failure border officials had sent a paper note to the wrong terminal at Heathrow.
After he was detained on June 28, Shadow Home Secretary Yvette Cooper told Parliament the activist's arrival had "exposed as an incompetent sham" the government's pledge to be tough on border controls.
High Court judge Mr Justice Sladen agreed to Sheikh Salah's bail application and he was released from prison on Monday. He is now electronically tagged, must report daily to an immigration centre and observe a 15-hour nightly curfew. He is also banned from speaking in public. The Home Office had opposed his application. A spokesman said: "We are very disappointed. We are still seeking to deport Salah."
Last Friday, Raza Husain QC told the court that Sheikh Salah "categorically denied" all the allegations made against him, including the suggestion he had made antisemitic remarks or had links to Hamas or Turkish Islamic group IHH.
Mr Husain said there was evidence his client was a "peaceful campaigner for Palestinian rights" and a "serious political figure in Israel". He said there would be no risk to the British public if he were bailed.
Mr Husain also confirmed his client had visited Britain on four occasions since 1997 without his presence being questioned.
The court heard testimonials from Liberal Democrat peer Baroness Tonge, who described Sheikh Salah as a "calm and thoughtful man worth listening to", and from Labour peer Lord Ahmed.
Victoria Brittain, former associate editor of the Guardian, offered to pay a £10,000 surety towards his release.