According to a report in The Guardian, Blears told MPs that "there was no getting away from it", because the terrorist threat came from people "falsely hiding behind Islam".
'Her comments, which came on a day when leading British Muslim groups met to hammer out a strategy on maximising the Islamic vote for the election, provoked immediate condemnation from Islamic leaders,' the report said.
Blears was speaking at the all-party Home Affairs Select Committee's inquiry into the effect of anti-terror powers on community relations.
"If a threat is from a particular place then our action is going to be targeted at that area," she said. "It means that some of our counter-terrorism
Muslim groups reacted angrily, describing her comments as "outrageous" and "irresponsible". The Islamic Human Rights Commission chairman, Massoud Shadjareh told the BBC that Ms Blears was "playing an Islamophobia card" and "demonising and alienating our community."
"The remarks are thoroughly unhelpful as we've seen a rise in anti-Muslim sentiment in the UK," The Guardian quoted Muslim Council of Britain spokesman Inayat Bunglawala as saying.
"It is wholly unacceptable if a government minister is using her office to scaremonger at the expense of our community to ease the passage of legislation designed to curb our civil liberties."
Blears' comments come at a awkard time for the Labour government, which is struggling to pass stringent anti-terrorism legislation through parliament and gear up for the May 5 elections, the paper said.