A potentially explosive stand-off between rival Muslim followers developed at London's Wandsworth Prison
The Independent Monitoring Board (IMB) at the jail in south London said a "schism" had emerged between worshippers over the prison's imam.
The IMB annual report said there was evidence some prisoners were forced to adopt "more militant lifestyles".
A Prison Service spokeswoman said the imam concerned had been replaced.
The report said: "There is a schism existing amongst Muslims in the prison about the imam.
"There have been petitions from two opposing sides on this subject to the governor.
"We are concerned that unless sensitively managed, this issue could become even more emotional and potentially explosive."
It said the issues surrounding the imam should be "resolved as quickly as possible" despite the religious leader already being replaced.
IMB chairman David Jamieson said: "It is an issue of how the ... imam interprets the Koran.
"There is a difference of views between the Asian Muslims and the North African and Afro-Caribbean Muslims."
The report also reflected recent media reports that there had been greater attendance at religious services in the prison because inmates were using them as a venue to deal drugs and trade illegal mobile phones.
The board said there was a worrying increase in the number of inmates using banned phones.
The report also said drugs were "slipping through the net" when new prisoners arrived at the 1,456-capacity jail.
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