Muslim groups and civil liberties advocates applauded a Wednesday’s decision by New York Police Department to disband a controversial anti-terrorist unit that tracked the daily lives of Muslims in the city.

The Demographics Unit, conceived with the help of a CIA agent working with the NYPD, assembled databases on where Muslims lived, shopped, worked and prayed.

Plainclothes officers infiltrated Muslim student groups, put informants in mosques, monitored sermons and catalogued Muslims in New York who adopted anglicised surnames.

NYPD spokesman Stephen Davis confirmed that detectives assigned to the unit had been transferred to other duties within the department's Intelligence Division.

Arab American Association of New York executive director Linda Sarsour applauded the decision but said there was still concern about the police use of informants to infiltrate mosques without specific evidence of crime.

"This was definitely a part of the big puzzle that we're trying to get dismantled," Ms Sarsour said.

But she added: "This doesn't necessarily prove to us yet that these very problematic practices are going to end."

Democrat New York mayor Mayor Bill de Blasio called the shut-down "a critical step forward in easing tensions between the police and the communities they serve, so that our cops and our citizens can help one another go after the real bad guys."

Two civil rights lawsuits were filed challenging the activities as unconstitutional because they focused on religion, national origin and race.