The station, which broadcasts in Arabic to Iraq and Saudi Arabia, has called on Muslims to join the "holy war" and even urged followers to kill British Prime Minister Tony Blair during the Iraq war.
Shadow minister for homeland security Patrick Mercer said the station was "desperately demoralising" for troops serving in Iraq and has urged the government to have it shut down.
The 24-hour radio station is sponsored by Saudi dissident Dr Mohammad al Massari, who is claimed to be an associate of Al Qaeda leader Osama bin Laden.
The London-based extremist has appealed to Muslims to donate money to his bank account in the UK to enable him to spread his message of hate.
Labour MP Andrew Dismore has demanded the bank account be frozen, saying: "What's the money really being used for?"
Massari also has links with Tajdeed.net, which carries films of terrorist bombing and beheadings.
TV watchdog Ofcom said it had no control over broadcasts outside the UK.
Al Massari, who heads an Islamist party called Tajdeed, is one of a number of "preachers of hate" who face being deported from the UK.
"Once the new law has come into effect, we should be able to deal with him," Dismore said.
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