Sheikh Isa Qassim, considered the spiritual leader of Bahrain's Shia majority, was alleged to have used his position to "serve foreign interests and promote... sectarianism and violence," the ministry said in a statement carried by BNA state news agency.
Qassim "adopted theocracy and stressed the absolute allegiance to the clergy," the ministry said, adding that he had been in continuous contact with "organisations and parties that are enemies of the kingdom."
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The decision follows the suspension of Bahrain's main Shia opposition group, Al-Wefaq, whose political chief Sheikh Ali Salman is serving a nine-year jail term for inciting violence.
Home to the US Navy's Fifth Fleet, Bahrain has been shaken by unrest since security forces crushed the 2011 protests demanding a constitutional monarchy and an elected prime minister.
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