Riot police stormed through a Manama square firing rubber bullets and tear gas in a violent crackdown on anti-government protesters that left four dead, witnesses and opposition said.
Up to 95 protesters were wounded when police launched the operation in the iconic Pearl Square without warning at around 3.00 am (midnight GMT), sending protesters fleeing in panic, they said.
"They attacked the square, where hundreds of people were spending the night in tents," said one witness, 37-year-old Fadel Ahmad.
At the city's main Salmaniya hospital, medical staff were overwhelmed as ambulances and private cars were still ferrying in the injured more than three hours after the assault began.
Relatives of the victims gathered outside the hospital, angry and weeping.
During the operation, explosions and ambulance sirens could be heard a few hundred metres (yards) from the central square, which had been sealed off. Demonstrators fled pursued by security forces, as a helicopter flew overhead.
By dawn Thursday, police officers were clearing away the tents as acrid clouds of tear gas hung over the square.
Security forces were by mid-morning deployed across Manama, with armed police blocking roads leading to the square and setting up checkpoints in other streets, causing heavy traffic congestion.
Bahrain's authorities, defying US-led appeals for restraint, said they had no choice.
"The security forces evacuated Pearl Square ... after having exhausted all chance of dialogue," interior ministry spokesman General Tarek al-Hassan said, in a statement from the official news agency BNA.
"Some left the place of their own accord, while others refused to submit to the law, which required an intervention to disperse them," he said.
Thousands of demonstrators inspired by uprisings in Tunisia and Egypt, had been occupying the square since Tuesday, after police killed two young Shiite demonstrators during anti-government protests.
The leader of the main Shiite opposition condemned it as a "savage and unjustified attack against a peaceful assembly."
Sheikh Ali Salman, head of the Islamic National Accord Association (INAA), told AFP: "This attack was a mistaken decision which will have catastrophic repercussions on the stability of Bahrain."
The INAA said riot police had opened fire without warning using rubber bullets.
Relatives named two of the dead as Mahmoud Makki Ali, 22, and Ali Mansour Ahmad Khoder, 52, though they did not indicate the circumstances of their deaths.
One of Khoder's relatives said: "We refuse to receive the body until we get a written report on the main reasons behind his death."
An MP from INAA, Ali al-Aswad told AFP that a third protester shot in his chest with a hollow-point bullet died of his wounds, naming him as Hussein Zaid.
He said another protester died after being shot in the head by police, adding that at least 95 people were injured, some seriously.
The latest deaths bring to six the number of demonstrators killed since the protests began on Monday in response to messages posted on Facebook.
Protesters had renamed Pearl Square as Tahrir (Liberation) Square, after the area in Cairo that became the focal point of an uprising that finally toppled strongman Hosni Mubarak last Friday after 18 days of nationwide protests.
On Wednesday, thousands of Bahrainis chanted for a "real constitutional monarchy" after the burial of the second protester.
But the atmosphere had been relaxed as thousands poured into Pearl Square after the funeral.
The interior ministry had said it would allow demonstrators to stay in the square, "taking in consideration the feelings" of the people.
The INAA, the largest Shiite opposition bloc, said its 18 MPs would continue a boycott of the 40-member parliament launched Tuesday until steps were taken to establish a real constitutional monarchy.
They called for a prime minister elected by the people, not appointed by the king.
Before the latest clashes, the White House said Wednesday it was watching the developments "very closely" and called on Bahrain's rulers to allow peaceful anti-government protests.
Bahrain serves as headquarters for a pillar of American military power, the US Navy's Fifth Fleet, which commands a rotating flotilla of vessels charged with safeguarding oil shipping lanes in the Gulf and countering Iran.
Former colonial power Britain had also called for restraint.
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