"There is no reason why Sharia principles, or any other religious code, should not be the basis for mediation or other forms of alternative dispute resolution," Chief Justice Lord Phillips of Worth Matravers said on Thursday night while speaking at the East London Muslim Centre in Whitechapel.

"It must be recognised, however, that any sanctions for a failure to comply with the agreed terms of mediation would be drawn from the laws of England and Wales," he said.

He said severe physical punishments like flogging, stoning and cutting off hands would not be acceptable.

Sharia - a set of principles governing the way Muslims believe they should live their lives-suffered from 'widespread misunderstanding' by the rest of the world, he said.

He, however, said: "Those who live in this country are governed by English and Welsh law and subject to the jurisdiction of the courts."

The top judge said the Archbishop of Canterbury Rowan Williams had been misunderstood when he was reported in February as saying British Muslims could be governed in some aspects by Sharia law.

"It was not very radical to advocate embracing Sharia law in the context and our system already goes a long way towards accommodating the Archbishop's suggestion."