The island nation's justice department accused it of sanctioning violence and glorifying the men convicted of killing three police officers in a 2014 bomb blast.
A court in Bahrain on Wednesday ordered that the country's last main opposition group be dissolved and its property confiscated.
The Bahrain Institute for Rights and Democracy said the political society known as Waad plans to appeal the ruling. Waad confirmed the court order for its dissolution on its official Twitter account.
The Justice Ministry, which filed a case against the 15-year old Waad in March accusing it of "serious violations targeting the principle of respecting the rule of law, supporting terrorism and sanctioning violence," welcomed the court ruling.
It said the group that had glorified as "martyrs of the homeland" men convicted of killing three police officers in a bomb attack in 2014. The men were executed this year, Bahrain's first use of capital punishment in years.
The government used similarly broad wording to dissolve the country's largest Shia opposition group, al-Wefaq.
Majority Shia nation
Bahrain is a majority Shia nation ruled by a Sunni monarchy with close ties to Saudi Arabia and the United Arab Emirates, which sent forces to help quell an Arab Spring style uprising in 2011.
An official at the State Department in Washington said the US is "deeply concerned" by the court decision to dissolve Waad and urges the government to reconsider its judicial action against the group.
"As we have consistently maintained, opposition parties that peacefully voice criticism of the government play a vital role in encouraging societies that are tolerant, inclusive, and pluralistic," said Edgar Vasquez, a spokesman for the State Department's Bureau of Near Eastern Affairs.
Earlier this month, however, President Donald Trump touted Washington's "wonderful relationship" with Bahrain, which hosts the US Navy's 5th Fleet. His administration has also notified Congress it planned to approve a multi-billion dollar sale of F-16 fighter jets to Bahrain without the human rights conditions imposed by the State Department under President Barack Obama.
Bahrain accuses Shia-ruled Iran, which lies across the Persian Gulf waters, of arming and training some protesters to destabilise the country. Shia militant groups have claimed responsibility for some deadly attacks on police, however Iran denies it has trained or assisted groups in Bahrain.
Waad's dissolution comes a week after five people died in a police raid on the hometown of a prominent Shia cleric who was stripped of his nationality and faces possible deportation. Police arrested 286 people in the raid, adding to the hundreds more who have been jailed, forced into exile or stripped of their nationality in recent years.
Two smaller opposition groups remain active, however Waad was seen as the last major opposition group still functioning in Bahrain. The secular group included both Shia and Sunni activists and political figures. Its offices were set ablaze twice before by vandals.
"Today matters because it says the government won't just not tolerate Shiite opposition, it won't tolerate any opposition," Brian Dooley, a senior adviser at Human Rights First said.
Rights group Amnesty International said "Bahrain is now heading towards total suppression of human rights" with Wednesday's court ruling.
The case stems from a statement Waad made in February on the anniversary of the country's 2011 uprising in which the group criticized the Bahraini constitution.
"Their only so-called 'crime' is exercising their right to freedom of expression and association," said Lynn Maalouf, director of research at Amnesty International's Beirut regional office.
Separately, Amnesty International reports that human rights activist Ebtisam al-Saegh says she was tortured for seven hours in Bahrain during an interrogation last month. She says she was blindfolded, beaten, kicked and kept standing for most of the time, and that she was threatened with the rape of her daughter and the torture of her husband.