The government wants to tap the large supply of funds from Muslim investors who want a return on their money but are forbidden from earning interest.
The Treasury is looking at how to issue a sukuk, as the bonds are known, raising around £200m.
As an alternative to interest, the return on the bond must be based on profits from underlying assets.
“Time and again London has adapted and evolved first to provide new ways of doing business,” David Cameron will tell the World Islamic Economic Forum today. “I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world.”
It comes after the government announced plans to allow Chinese banks to set up branches in London, and to allow more direct investment between China and the UK. It is part of a plan to ensure London remains a key financial centre even as the global economy changes shape.