Five protesters were killed and 286 arrested after police in Bahrain raided the hometown of a Shia Muslim spiritual leader who faces deportation.
Sheikh Isa Qassim was stripped of his citizenship last June, and last week a court gave him a year’s suspended sentence for financial corruption.
He was not among those detained in Diraz, but the interior ministry said “terrorists and convicted felons” were hiding inside his home.
Footage from the town showed protesters confronting armoured vehicles and police.
Gunshots are heard and white smoke from tear gas can be seen.
Tuesday’s violence comes just days after Donald Trump told King Hamad bin Isa Al Khalifa that he would improve relations between the two countries.
Their relationship has been strained for several years, despite the kingdom being host to the US Navy.
A crackdown on dissent over the last year has heightened tensions between the Shia majority and the Sunni rulers, and access to Diraz has been tightly controlled for months.
Bahrain accuses Iran of encouraging unrest by the country’s Shia population, while Iran said Mr Trump’s remarks about Tehran supporting militant groups were to blame for the deaths.
Iran’s foreign minister, Mohammad Javad Zarif, tweeted: “First concrete result of POTUS (Trump) cozying up to despots in Riyadh: Deadly attack on peaceful protesters by emboldened Bahrain regime.”
Nicholas McGeehan, a senior Bahrain researcher at Human Rights Watch, said: “The timing of this operation two days after King Hamad’s convivial meeting with President Trump can hardly be a coincidence.”
Ebtasam Alsaegh, from the neighbouring village of Bani Jamra, said mosques had called residents to the streets to protect Sheikh Qassim.
“The situation is terrifying,” she said.
The interior ministry said that police had been deployed to remove road blocks and barricades.
“Police remain deployed in the area to ensure the safety of people,” it said in a statement.
It added that 19 members of the security services were injured after petrol bombs were thrown at them.
During 2011’s Arab Spring, Bahrain crushed an uprising by the Shia community with the help of Saudi Arabia.