Headteacher Jason Tugwell opened the family-run Green Pastures Christian Academy in north Cardiff in March 2002 to educate his dyslexic son, who had been bullied. The school now has 15 pupils aged five to 15, funded by the proprietors and donations.
But inspection agency Estyn found it did not comply with seven key standards required for registration, from the quality of education to the suitability of staff. Mr Tugwell claimed the school had been penalised because it does not "conform to the state curriculum".
Green Pastures, which has three full-time teachers, uses a curriculum based on the teaching of the Bible as the foundation for all other learning.
Mr Tugwell said: "It's a Christian curriculum and not a local education authority one, that's why we were marked unfairly. They didn't understand it. They said we didn't have assessments, but that's built into the curriculum. The pupils continue to have tests and quizzes."
The school is considering an official complaint about the way the report was conducted and its findings.
Inspectors said the school was not meeting the needs of pupils. They were not making enough progress, teaching methods and resources were limited, and the "slow pace" of lessons often meant pupils lost interest. Maths and English lessons in key stages 1 to 3 received a below-par grade 4.
The inspection team criticised management for having no assessment system to provide a record of achievement or school development plan. It said the curriculum was not "broad and balanced", and there were no policies to develop the key skills of communication, numeracy and ICT.
But there was praise for pupils' good behaviour and attendance. The lessons encouraged discussion, and there were good standards in speaking and listening. Estyn said the school promoted spiritual, moral and social development effectively and the arrangements for personal and social education were good.
It told the school to develop key skills and to plan work that would help pupils progress "according to their age and ability".
The school has to produce an action plan for the Assembly government. A spokesperson said no action would be taken until receipt of the plan in the next few weeks.