James Bagshawe, 53, was made redundant from his £185,000 a year post as chief operating officer at Sharia-run Gatehouse Bank in August 2011, the employment tribunal was told.
He claims Muslim employee Twalha Dhunnoo was then appointed to take over his role despite being less qualified.
Mr Bagshawe, who earned more than £1 million in pay and bonuses during his four years with the bank, also claims they got rid of him because he raised concerns about a £100 million investment with the Financial Services Authority.
He said his treatment at the hands of the bank was "particularly unacceptable given the aims, values and ethics" of the Shariah-compliant institution.
The investment banker, from Kent, has now taken his case to a central London employment tribunal. If he wins his case there is no limit on the compensation figure he could be awarded.
Giving evidence today, Mr Bagshawe from Gravesend in Kent, said: "I do not make this allegation lightly.
"Based on my assessment of our respective experience and skills I did not see there was any rational reason for the difference in treatment.
"It's my view that my race, nationality, ethnic background or religion or beliefs had been a factor in my dismissal and I do not believe that Gatehouse has provided any evidence to rebut this view."
Mr Bagshawe, who has 25 years experience in banking having previously worked for Arab Bank Group, JP Morgan and Flemings, claims non Muslims were also left out of a multi-million pound deal in early 2011.
He said: "The fact remains that the chairman of the bank Fahed Boodai, as a Muslim, chose to involve Mr Dhunnoo, another Muslim, in the Kuwati Investment Authority investment to the exclusion of his UK-based executive team, none of whom were Muslim."
Mr Bagshawe told how the bank, which was only set up in 2007, even dismissed him while he was away on holiday.
He said: "I feel I have been badly treated by Gatehouse and its board.
"I was a founding member of the Executive Team when Gatehouse was set up and over four years I committed a great deal of time and energy trying to make it succeed.
"The manner of my dismissal on holiday can only be described as unnecessary and vindictive, and it leaves a sour taste in my mouth.
"I also consider the Board's handling of my dismissal and these proceedings to have lacked integrity, honesty, fairness and transparency.
"I find this particularly unacceptable given the aims, values and ethics that Gatehouse should be promoting as a Shariah-compliant institution."
He added it was the 'most difficult moment' of his career to take the bank to a tribunal as he still had good friends and colleagues working there but said: "The Board left me with no choice to pursue this course of action."
The bank deny the allegations and say Mr Bagshawe's position was cut because there was no longer a need for it, not that he was replaced.
They further deny he was discriminated against because of his race and claim there is no evidence to support this.
The concerns Mr Bagshawe is said to have raised as a 'whistleblower' have never been officially recognised by the FSA.
The tribunal, which is expected to last 12 days, continues.