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The Archbishops of Canterbury and York have criticised Michael Gove's planned redefinition of extremism.
Justin Welby and Stephen Cotterell said the government's response, to what Rishi Sunak has called a shocking rise in extremism, "risks vilifying the wrong people".
The pair added it threatens freedom of speech and worship.
The Department for Levelling Up, Housing and Communities (DLUHC) is yet to respond to a request for comment.
Currently the government defines extremism as "vocal or active opposition to fundamental British values, including democracy, the rule of law, individual liberty and mutual respect and tolerance of different faiths and beliefs".
Mr Gove is expected on Thursday to set out a new official definition of extremism which will be used by the government to cut ties or funding to any groups deemed to have crossed the line.
On Sunday, he M warned some pro-Palestinian events "have been organised by extremist organisations".
It follows a statement by Rishi Sunak at the start of the month in which he warned the UK must face down extremists undermining British democracy.
But, the archbishops - who have held talks with Mr Gove about the plans - believe the government risks disproportionately targeting Muslim communities.
In a statement, Mr Welby and Mr Cotterell urged the government to "reconsider and consult far more widely with all those affected".
"Instead of providing clarity or striking a conciliatory tone, we think labelling a multi-faceted problem as hateful extremism may instead vilify the wrong people and risk yet more division," they said.
"The new definition being proposed not only inadvertently threatens freedom of speech, but also the right to worship and peaceful protest - things that have been hard won and form the fabric of a civilised society.
"Crucially, it risks disproportionately targeting Muslim communities, who are already experiencing rising levels of hate and abuse."
The Church of England has offered to work with the government to help communities discuss the plans - something the archbishops said would be fulfilling a historic role.
A government spokeswoman said: "We are taking action to ensure that no extremist organisations or individuals are being given a platform by their actions and interactions with government."
Ministers have also announced they will appoint a new independent adviser on anti-Muslim hatred.
However, one man thought to be in the running for the job, Fiyaz Mughal, says he withdrew before being appointed after suffering a torrent of abuse.