In a speech to the Munich Security Conference, Cameron signalled a marked change in policy towards Britain's ethnic and religious minorities, saying the "hands-off tolerance" of those who reject Western values has failed.
He urged a "more active, muscular liberalism" where equal rights, the rule of law, freedom of speech and democracy are actively promoted to create a stronger national identity.
"If we are to defeat this threat, I believe it's time to turn the page on the failed policies of the past," he told the conference during a panel discussion attended by German Chancellor Angela Merkel.
Cameron's speech echoed controversial comments made by Merkel last year, when she also called multiculturalism a failure, saying Germany had not devoted enough attention to the integration of immigrants.
But his remarks sparked a chorus of condemnation, with the Muslim Council of Britain expressing anger that the Muslim community was being still being treated "as part of the problem as opposed to part of the solution."
It was Cameron's first major speech on Islamist extremism, an issue of major concern for British governments since four home-grown suicide bombers attacked the London transport system in 2005, killing 52 people.
The prime minister, who took power in May 2010, argued that "under the doctrine of state multiculturalism, we have encouraged different cultures to live separate lives, apart from each other and the mainstream".
"It is disappointing," Faisal Hanjra, assistant secretary general of the Muslim Council of Britain, told BBC radio, adding that it did not appear to mark in shift in the approach to tackling terrorism.
"Again it just seems the Muslim community is very much in the spotlight, being treated as part of the problem as opposed to part of the solution."
Mohammed Shafiq, chief executive of British Muslim welfare group the Ramadhan Foundation, added: "Singling out Muslims as he has done feeds the hysteria and paranoia about Islam and Muslims."
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