Explosive: The Lord Chief Justice's endorsement of Sharia law has already created huge controversy

The most senior judge in England yesterday gave his blessing to the use of sharia law to resolve disputes among Muslims.

Lord Chief Justice Lord Phillips said that Islamic legal principles could be employed to deal with family and marital arguments and to regulate finance.

He declared: 'Those entering into a contractual agreement can agree that the agreement shall be governed by a law other than English law.'

In his speech at an East London mosque, Lord Phillips signalled approval of sharia principles as long as punishments - and divorce rulings - complied with the law of the land.

But his remarks, which back the informal sharia courts operated by numerous mosques, provoked a barrage of criticism.

Lawyers warned that family and marital disputes settled by sharia could disadvantage women or the vulnerable.

Tories said that legal equality must be respected and that rulings incompatible with English law should never be enforceable.

Lord Phillips spoke five months after Archbishop of Canterbury Dr Rowan Williams suggested Islamic law could govern marital law, financial transactions and arbitration in disputes.

The Lord Chief Justice said yesterday of the Archbishop's views: 'It was not very radical to advocate embracing sharia law in the context of family disputes'.

He added there is 'widespread misunderstanding as to the nature of sharia law'.

The Sharia Council of Britain: (from right to left) Dr Suhaib Hasan, Maulana Abu Sayeed and Mr Mufti Barabatullah preside over marriage cases at their headquarters earlier this year

Under fire: The Archbishop of Canterbury, Dr Rowan Williams. His comments on Sharia sparked a political storm

Lord Phillips said: 'Those who are in dispute are free to subject it to mediation or to agree that it shall be resolved by a chosen arbitrator. There is no reason why principles of sharia law or any other religious code should not be the basis for mediation or other forms of dispute resolution.'

Lord Phillips said that any sanctions must be 'drawn from the laws of England and Wales'. Severe physical punishment - he mentioned stoning, flogging or amputating hands - is 'out of the question' in Britain, he added.

Lord Phillips' speech brought protests from lawyers who fear women could be disadvantaged in supposedly voluntary sharia deals.

Barrister and human rights specialist John Cooper said: 'There should be one law by which everyone is held to account.

'Well-crafted laws in this country, drawn up to protect both parties including the weak and vulnerable party in matrimonial break-ups, could be compromised.'

Resolution, the organisation of family law solicitors, said people should govern their lives in accordance with religious principles 'provided that those beliefs and traditions do not contradict the fundamental principle of equality on which Britain's laws are based.'

Spokesman Teresa Richardson said religious law 'must be used to find solutions which are consistent with the basic principles of family law in this country and people must always have redress to the civil courts where they so choose.'

Robert Whelan, of the Civitas think tank, said: 'Everybody is governed by English law and it is not possible to sign away your legal rights. That is why guarantees on consumer products always have to tell customers their statutory rights are not affected.

'There is not much doubt that in traditional Islamic communities women do not enjoy the freedoms that they have had for 100 years or more in Britain.

'It is very easy to put pressure on young women in a male-dominated household. The English law stands to protect people from intimidation in such circumstances.'

Shadow Home Secretary Dominic Grieve said: 'Mediation verdicts which are incompatible with our own legal principles should never be enforceable. One of the key aspects of our free society is equality. This should be understood and respected by all.'

The Ministry of Justice said: 'English law takes precedence over any other legal system. The Government has no intention of changing this position. Alongside this, it is possible to resolve civil law dispute by other systems.'

Man in the news: Lord Phillips

When appointed Lord Chief Justice, Nicholas Phillips gave the impression he would steer an uncontroversial course.

He was best known as a Master of the Rolls - the most senior civil law judge - who had condemned the compensation culture.

His first act in office was to declare: 'I intend to keep out of politics'.

However 70-year-old Lord Phillips of Worth Matravers has followed his predecessor Lord Woolf in pushing for fewer prison sentences for criminals and has repeatedly clashed with ministers over criminal and constitutional law.

This week, members of the Government criticised the punishments he has devised for youths caught carrying knives.

In October 2006, newspapers pictured the Law Lord carrying out a community punishment in jeans and high visibility jacket, leaning on a shovel, and declaring government penal policy to be 'madness'.

In September, Lord Phillips is to leave the post to become the chief Law Lord and President of the new Supreme Court when it opens next year.

He has two children with his French wife, Christylle, and two stepchildren.