Judge Khatun Sapnara, herself a practising Muslim, ruled on Tuesday that the children should live with her grandmother where her religious and cultural needs can be met.
Addressing Tower Hamlets borough council - the body which placed the youngster - Sapnara was quoted by The Times as asking: "You would presumably accept that the priority should be an appropriate, culturally matched placement that meets the needs of the child in terms of ethnicity, culture and religion?"
A legal representative for the authority agreed with Judge Sapnara's ruling but claimed there had been no white British foster families available when the child initially became their responsibility.
The five year old will continue to have regular and supervised contact with her mother until the child's future is decided at an unknown future date.
Since March this year, the youngster had been placed with two different Muslim families - one for four months and another for two months.
She claimed the first family prevented her from wearing a necklace with a cross on it and from eating carbonara because it contained bacon.
The youngster also alleged the first family didn't speak English but encouraged her to learn Arabic. It was alleged that she became tearful when she was returned to the home.
Under the law, a local authority must give appropriate consideration to a child's "religious persuasion, racial origin and cultural and linguistic background".
Tower Hamlet council told The Times child welfare was "at the heart" of its fostering services. It added that legal restrictions prevented it from correcting "inaccuracies" surrounding the case.