Principals urged to report radical behaviour and literature - and tackle prejudice against Muslims.
Colleges should try to detect and report extremism inspired by Al- Qaeda, say ministers.
A report by the Department for Universities, Innovation and Skills and the Association of Colleges responds to concerns of principals after it was learnt some conspirators in the July 2005 London bomb plots were former FE students.
It says colleges should be ready to identify and report violent extremist behaviour to the police.
Colleges are also urged to be aware of speakers and literature which advocate violent extremism on campus, while also tackling prejudice against Muslim students.
Bill Rammell, the further and higher education minister, said: "Many young people and adults benefit from further education and are able to play more of a leadership role in their families, workplace and communities as a result. Because of this, it is absolutely critical that FE institutions embody values of openness, free debate and tolerance.
"By promoting this culture, we will provide an environment with the trust and respect in which communities can deal more productively and collaboratively with any conflict arising from differences of culture, ideology or faith.
"There is a particular opportunity for FE institutions because they are often at the heart of the communities they serve."
Faisal Hanjra, spokesman for the Federation of Student Islamic Societies, questions the notion that extremist groups are using colleges as a recruiting ground.
"There's no evidence that FE colleges are recruiting grounds for terrorists or radicalised ideologies," he said. "It's important to remember that these young men involved in 77 went to college, but they also went to Tesco, to the mosque and to work. It doesn't mean they were radicalised there."
Michelle Sutton, principal of Bradford College, which has a catchment area with one of the highest proportions of Muslims in the UK, said the Government's approach to consulting colleges on this issue was constructive and she would be asking her students for their views.
She said the college encourages free debate and students organised a conference to discuss controversies concerning Muslims, such as the plight of Palestinians, with a member of staff present throughout. The report says such activities make it harder for violent extremists to gain a foothold.
"We try to see ourselves as an oasis of calm in Bradford, a safe environment to come and learn whatever they want," she said.
While the report mentions a wide range of extremist ideologies, such as the far right political groups and animal rights activists, it said the biggest threat was from groups influenced by Al-Qaeda. The University and College Union said this focus may make Muslim students and staff feel unfairly singled out.
Sally Hunt, UCU general secretary, said: "We note that this draft guidance seeks to focus on Al-Qaeda influenced terrorism. We still have some worries, however, that Muslim students and staff generally will feel themselves to be the focus of attention. We will certainly be feeding into the consultation, advised by our members."
Leading article, page 4.