The troubled Al-Madinah free school is to stop teaching secondary pupils from this summer.
The Government has stepped in after an Ofsted report warned that the school was in chaos, with concerns over teaching quality and the curriculum.
Schools minister Lord Nash said: "I have come to the conclusion that it would simply not be in the interests of parents or pupils at the secondary school to continue to fund provision which has failed them in the manner now apparent."
He said the move would allow the trust to focus on the primary school.
The Al-Madinah school opened in September 2012, and within a year was under investigation by the Education Funding Agency over alleged irregularities.
There have been claims it was imposing strict Islamic practices, such as forcing women to wear headscarves, and a temporary closure due to health and safety concerns.
In October Ofsted branded the school "dysfunctional", prompting Lord Nash to announce that a new education Trust was being brought in, but before Christmas inspectors reported that there was still "no sign of improvement".
Critics have held the situation up as an example of the problems with the coalition's flagship free schools policy.
In a letter to the Trust today, Lord Nash said it was "clear there is a great deal of work to do at the school".
"I am particularly concerned at the poor quality of secondary teaching and the lack of breadth in the secondary curriculum," he wrote. "I have decided it would be in the best interests of those children in the secondary school to continue their education elsewhere from this September onwards."
A Department for Education spokesman said: "The vast majority of free schools are performing well but where we have found failure we have acted swiftly and decisively.
"We have monitored Al-Madinah very closely since problems came to light last year. Based on the current situation we believe the new board - which began work last week - needs to focus efforts on the primary school in order to bring about the level of improvement required.
"The board has accepted our decision to close the secondary school and we have offered our full support in helping pupils to find alternative places before the start of the next academic year."