MPs and anti-extremist campaigners said the Charity Commission had shown naivety after it emerged the charity at the centre of the row was run by a man who had twice been charged and cleared of terrorism offences, and served a jail sentence for a firearms conviction.

Faisal Mostafa, 45, a chemist from Stockport, Greater Manchester, was arrested after the raid on Tuesday. Hundreds of grenades, along with guns and ammunition were found in the orphanage on the southern island of Bhola, allegedly run by his Manchester-based charity, Green Crescent.

Despite his history, Mr Mostafa was allowed to register the charity in 1998. Laws governing the running of charities, overseen by the Charity Commission, state anyone "convicted of an offence involving dishonesty or deception" should be ineligible to act as a charity trustee.

But with more than 190,000 charities registered in the UK, involving about one million trustees, the commission said it relies on tip-offs from the public rather than the labourious process of vetting charity workers itself. It also does not have general access to the Police National Computer, preventing it from checking the backgrounds of charity workers.

Patrick Mercer, the Tory chairman of the Commons Counter Terrorism Sub-Committee, said that the Charity Commission needed to be given stronger powers by the Government.

"It is clearly highly respected, but this monitoring work is just the sort of thing that is crucial. We cannot have convicted criminals or people with links to terrorism involved in this sort of activity.".

A spokesman for the Charity Commission said: "The Commission expects charities to report any serious incidents to them involving serious allegations about trustees, and failure to do so is a serious concern."