"This will be particularly helpful to young Australian Muslims who want to understand the role of religion in Australia," Andrew Robb, parliamentary secretary for immigration and multicultural affairs, said in a statement published by The Sydney Herald.
He added that the government has allocated eight million dollars (six million US dollars) to establish the research and training institute.
"The courses will provide many subjects relevant for those training to be Muslim religious leaders, providing an important vehicle for the teaching of Islam in an Australian context,"
Robb said the institute, to be set up at an existing university which has not yet been decided, could attract up to 300 students when classes begin in 2007.
It would also "attract eminent, moderate Islamic scholars from around the world," noted Robb.
Numbering around 300,000, Australia's Muslims make up to 1.5 per cent of the country's 20 million population.
There were no reports about the position of Australia's Muslims on the planned government institute.
Muslim leaders, however, have been critical of the government security approach in dealing with the phenomenon of extremism and criticized Prime Minister John Howard for supporting spying on mosques and Islamic institutes.
The government has already set up the Muslim Advisory Council, which in turn set up a self-governing body to register imams and administer a voluntary code of conduct to filter out radicals.
The Islamic research and training institute is a central plank of the $35 million, four-year action plan, which is aimed at promoting social cohesion and harmony, according to Robb.
"Helping disadvantaged Australians, including some Muslim communities, become integrated and connected to mainstream Australia is the best way to prevent extremists getting a toehold in Australia," Robb said.
The funding package includes $4.4 million for human rights education in Muslim communities, which is to be run by the Human Rights and Equal Opportunity Commission.
The paper said that this program is aimed at breaking down barriers between Islamic youth and authorities, tackling discrimination and building mutual confidence, the Herald noted.
There is also $1.6 million for two new programs to boost employment in Lakemba and Macquarie Fields, in Sydney's southwest, and $1 million for an inter-faith education program.
Experts believe that the Australian government's domestic policies and draconian anti-terror laws have alienated ethnic minorities and were to blame the racial violence in December of last year.