The three-month state of emergency will hand considerable powers to Bahrain's security forces, which are dominated by the country's Sunni elite.
In a sign of continued disturbances on the island, an opposition politician said a Bahraini man was killed in clashes with police in the Shi'ite Muslim area of Sitra and several others were wounded.
The ministry of interior said a member of Bahrain's security forces was killed when he was run down by a protester driving a car in the country's south.
"A member of security force passed away in Maameer this evening when deliberately run over by one of the rioters," said the ministry in an English-language post on the Twitter social networking site.
Bahrain TV said the king had "authorised the commander of Bahrain's defence forces to take all necessary measures to protect the safety of the country and its citizens".
It was not clear if a curfew would be imposed or whether there would be any clampdown on media or public gathering.
Yesterday, more than 1,000 Saudi troops rolled into the kingdom in a long convoy of armoured vehicles, at the request of Bahrain's Sunni rulers, flashing victory signs as they crossed the causeway that connects the two countries.
The United Arab Emirates said it too would send 500 police.
Analysts saw the troop movement into Bahrain, home to the US Navy's Fifth Fleet, as a mark of concern in Saudi Arabia that concessions by the country's monarchy could inspire the kingdom's own Shi'ite minority.
Over 60 per cent 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 the Shi'ite power Iran.
Iran sharply criticised the Saudi intervention. "The presence of foreign forces and interference in Bahrain's internal affairs is unacceptable and will further complicate the issue," the foreign Mministry spokesman Ramin Mehmanparast said at his weekly news conference in Tehran.
A Bahraini foreign ministry official called the remarks a "blatant interference in Bahrain's internal affairs," the state news agency BNA said, adding that Manama had recalled its ambassador to Iran for consultations.
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.
Sectarian clashes broke out in different parts of Bahrain overnight, with Sunnis and Shiites trading accusations in the media that they had been attacked by gangs of youths.
Violent clashes between youths wielding clubs, knives and rocks have become daily occurrences, forcing Bahrain University and many schools to close in order to avoid further trouble.
In a sign that Bahrain is heading for prolonged unrest, demonstrators camped out at Pearl roundabout, the focal point of weeks of unrest, remained defiant on the Saudi intervention.
"We reject this intervention and we consider it occupation. Any foreign intervention to crush the people is occupation," said Akeel Jaber, an activist at the roundabout.
The United States has urged Saudi Arabia to show restraint, though analysts said the escalation showed the limits of US influence when internal security was threatened.
The US state department advised against all travel to Bahrain because of a "breakdown in law and order."
Although Washington is a close ally of Bahrain, US officials said they had been given any prior warning that Saudi or other forces from the region would deploy to the island.
A gang armed with clubs and butchers knives attacked the printing press of Bahrain's only opposition newspaper Al Wasat overnight in an effort to stop its publication.
Despite some reports that the protesters planned to reopen a main thoroughfare to Bahrain's financial district at dawn, metal barricades and piles of sand and rocks still blocked the road. At checkpoints near the roundabout, activists, some wearing yellow vests, checked identities and waved cars through.
"We are staying peacefully. Even if they attack we are peacefully," said Ali Mansoor, an activist at the roundabout.
"Saudi Arabia has no right to come to Bahrain. Our problem is with the government not Saudi Arabia."
Around Bahrain, residents have placed skips, bins and pieces of metal on the road, to prevent strangers from entering their neighbourhoods. In Sanad, a mixed area, residents heard clashes, shots and shouts. The street was covered in rocks at day break.
Young men, some wearing masks and carrying sticks, guarded the entrances to their areas. One person who declined to give his name for fear of revenge attacks, said he was stopped at night by masked men who held bird-hunting rifles to his head.
In a sign that the opposition and the royals may find an 11th-hour solution, the opposition groups said they had met the crown prince to discuss the mechanism for national dialogue.
Even if talks are successful however, the opposition is increasingly split and hardline groups may keep up protests.
Bahrain's largest Shiite party, Wefaq, wants a constitutional monarchy that vests the judicial, executive and legislative authority with the people. Republican demands by smaller parties have alarmed Sunnis.