A recently developed scaled boundary finite element formulation that can model the response of functionally graded materials is further developed to model crack propagation in two-dimensions. This formulation can accurately model the stress singularity at the crack tip in heterogeneous materials. The asymptotic behaviour at the crack tip is analytically represented in the scaled boundary shape functions of a cracked polygon. This enables accurate stress intensity factors to be computed directly from their definitions. Neither local mesh refinement nor asymptotic enrichment functions are required. This novel formulation can be implemented on polygons with an arbitrary number of sides. When modelling crack propagation, the remeshing process is more flexible and leads to only minimal changes to the global mesh structure. Six numerical examples involving crack propagation in functionally graded materials are modelled to demonstrate the salient features of the developed method.