The Bahrain military plans to secure the country's capital Tuesday night, clearing the Pearl Roundabout where protests have been held since mid-February, and securing government buildings, sources in the country told CNBC.
Bahrain's King Hamad al-Khalifa called for a three-month period of "national safety" Tuesday, as protestors continued to clash with security forcesthroughout mostly Shiite areas of the country.
This just one day after Saudi-led forces entered Bahrain as part of a broader Gulf Cooperation Council coalitioninvited by the al-Khalifa's to restore order and security to the country.
The decree amounts to martial law, with businesses closing and moving employees either back to their country of origin or to Dubai. The U.S. embassy in Bahrain has advised all U.S. citizens to limit their movements and to leave home only for essential purposes.
Bahrain has been gripped by its worst unrest since the 1990s after protesters took to the streets last month, inspired by uprisings that toppled the leaders of Egypt and Tunisia.
Unlike those countries, where the mainly Sunni populations united against the regime, Bahrain is split along sectarian lines, raising the risk of a slide into civil conflict.
Over 60 percent of Bahrainis are Shi'ites who complain of discrimination at the hands of the Sunni royal family. Calls for the overthrow of the monarchy have alarmed the Sunni minority, which fears that unrest could serve non-Arab Shi'ite power Iran.
Iran, which sits across the Gulf from Bahrain, sharply criticised the decision to send in Saudi troops.
The United States, a close ally of both Bahrain and Saudi, said it was concerned about reports of growing sectarianism in the country, which is home to the U.S. Navy's Fifth Fleet, and called for political dialogue to resolve the crisis.
"One thing is clear, there is no military solution to the problems in Bahrain," said White House spokesman Tommy Vietor.
Bahrain asked the Gulf Cooperation Council to lend its support for policing purposes earlier this week; the government says the GCC force is only in the country to protect vital infrastructure such as oil, electricity and water buildings.
At least two people are believed to have died as civilians clashed with armed militias in the Sitra area of Bahrain. Witnesses told CNBC that violence began Tuesday afternoon as militias brandishing knives, clubs and even guns opened fire in the mostly Shiite area, destroying shops and attacking people seemingly at random.
Guns are banned in Bahrain, leading many residents to speculate that the militias were in fact plain clothes security forces. Sources at the Royal Court rebutted such speculation, however, saying that anti-government protestors are armed and that the fighting has been between civilians only.
A banker who asked not to be identified said he feels the royal family and the government have clearly lost control, citing the Gulf Cooperation Council forces that were called in on Monday. He also said Bahrain's crown prince squandered the government's opportunity for a dialogue, failing to bring opposition parties to the table to start talks quickly.
Bahrain is expected to see its gross domestic product contract this year, partly as a result of the disruptions caused by protests.