Its not an abnormal assignment. Many artists use themselves as a model pretty regularly anyway. But its not something you should have to do if you aren't comfortable with it.
Just have a talk with him. Be very polite, nicely explain that you understand the value of the assignment, but you can't go through with it for personal and religious reasons. I'm sure he'll be understanding.
Don't be confrontational or defensive, you want to stay on good terms with the mighty grade-giver. Just be firm.
If the worst case crops up and he gives you a hard time then yes, take it up with the board or someone over his head. I don't know where you go to school but I'm in a California Uni and its actually illegal for them to give you assignments that discriminate against your religion. That's why I can always get my Saturday tests rescheduled so easily. Your school might have a similar rule, check it out.
You might want to offer to fulfill the assignment in part, say a self-portrait with something more form-fitting but still modest and appropriate. Or maybe a close up of a single body part like your hands.