Turkish authorities said they had decided to take over Bank Asya, the Islamic lender caught up in a feud between President Tayyip Erdogan and US-based Muslim cleric Fethullah Gulen.

The move was announced by the banking watchdog BDDK just over a week ahead of a parliamentary election and on the same day that Erdogan launched the Islamic business of the state-owned Ziraat Bank.

In February the BDDK had taken management control of Bank Asya, citing its failure to meet legal criteria.

The action began after a run on deposits at the bank last year when it became embroiled in the struggle between Erdogan and Gulen, whose followers set up the bank. Erdogan accuses Gulen of trying to unseat him, something the cleric denies.

The BDDK statement said it acted as "problems experienced in the bank's activities with its financial structure, its partnership and management make-up presented a danger ... in terms of confidence and stability in the financial system."

It handed over control of the bank to Turkey's Savings Deposit Insurance Fund (TMSF), which is responsible for dealing with troubled banks.

The TMSF said in a separate statement that the bank's operating licence had not been cancelled at this stage and that those affected by the decision had "nothing to worry about".

Turkey's move to seize management control of the bank in February had prompted accusations of political meddling that could hurt the country's reputation with international investors.

Suleyman Tasbas, a lawyer for Bank Asya shareholders, was earlier quoted by the Gulen-affiliated Samanyolu news website as saying that according to the banking law the takeover of the bank was not legally possible in the current situation.

Bank Asya swung to a net loss of 877 million lira ($336 mln) in 2014 on shrinking loans and deposits, but Tasbas said the bank had achieved a net profit in the first quarter and had provided most of the documents sought by the BDDK.

The authorities' decision came amid intense political party campaigning for the June 7 election, which Erdogan hopes will bring a strong victory for the ruling AK Party he founded and pave the way for constitutional changes boosting his powers.

Earlier on Friday Erdogan said the launch of Ziraat's Islamic business should help to attract new funds to Turkey and urged other state lenders to help to triple Islamic banking's share of the market by 2023.

Turkey's other two state lenders, Vakifbank and Halkbank, have also been looking to set up Islamic banks as part of the government's efforts to develop the sector.

Alongside Bank Asya, there are currently three Islamic banks operating in Turkey, holding a combined 5 percent share of total banking assets -- Albaraka Turk, Turkiye Finans and Kuveyt Turk, a unit of Kuwait Finance House.

Bank Asya depositors, including state-owned firms and institutions, last year withdrew 4 billion lira ($1.7 billion), or some 20 percent of its deposits, according to media reports.

Shares in Bank Asya were moved to the stock exchange's watchlist market last September, where companies are kept under surveillance.

In November, Bank Asya cut a third of its workforce and more than a quarter of its branches in an turnaround attempt.-Reuters