The concrete statue of six dhow sails holding up a pearl was demolished using drills and diggers on Friday.
Bahrain has arrested seven opposition leaders after weeks of protests that saw martial law being declared and troops from Saudi Arabia entering the tiny kingdom.
Weeks of protests – sometimes in violent clashes with security forces – by the Shia majority slid into sectarian violence and crippled the economy.
On Friday Sheikh Khaled bin Ahmed al-Khalifa, Bahrain's foreign minister, said the demolition of the statue was an effort to erase "bad memories".
He reiterated Bahrain's commitment to talks with the opposition but said security was a priority, and that three or four Gulf states were sending troops and will remain in the city until order is restored.
Speaking to reporters in Manama, Sheikh Khaled said their role will be limited to guarding strategic assets such as oil facilities, and they will not be involved in quelling protests.
Limited role
"We look with all confidence to the return of normal life in Bahrain," he said. "We know dialogue is our path."
Denying there was any "systematic violence against the people" Sheikh Khaled said the royals had done their utmost to push for dialogue, allowing protests and offering assurances, but the opposition had rejected talks and started blocking main streets, while civilians began to clash daily.
"In volatile situations you do expect violence to happen but there is no systematic violence against the people," he added.
In all, three protesters have died in the security sweep. Three policemen were also killed, hit by cars driven by demonstrators.
Thousands of angry mourners buried an activist killed in a crackdown that has angered Iran and raised tension in the world's largest oil-exporting region.
Sheikh Issa Qassim, Bahrain's most influential Shia cleric, said during Friday sermon that Gulf troops would have been better off helping Palestinians in Gaza than entering Bahrain.
"The violence of the authorities has created a deep, wide and dangerous wound between the government and people," he said.
"The government wants to break our will so we give up our calls for substantial and meaningful reforms, but they will never break our will. They can use tanks and planes to smash our bodies but will never break our souls and our will for reforms."
Psychological victory
The statue that was demolished comprised six sails symbolising each of the six members of the Gulf Cooperation Council, holding up a pearl, symbol of the pearl fishing heritage that was the economic mainstay of the region before the discovery of oil.
"It is a kind of psychological victory for the protesters," said Hussein Oraibi, who works in telecommunications.
"It upset them so much that people were gathering there, they had to go out of their way to pull this down and change the traffic directions."
Al Jazeera's correspondent in Bahrain, speaking anonymously for safety reasons, said the monument "was the centre of the protests for a month; it was seen as being symbolic of anti-government sentiment.
"It seems rather strange that by removing it there is the thought that that symbolism will disappear ... [The destruction] is very symbolic of that final stage in the last couple of days of this huge great crackdown on the opposition."
More than 60 per cent of Bahrainis are Shia, and most are campaigning for a constitutional monarchy.
But calls by hardliners for the overthrow of the monarchy have alarmed Sunnis, who fear the unrest serves Iran, separated from Saudi Arabia and Bahrain by only a short stretch of Gulf waters.
Shia Muslim power Iran, which supports Shia groups in Iraq and Lebanon, complained to the United Nations and asked other neighbours to join it in urging Saudi Arabia to withdraw from Bahrain.
In a sign of rising tension, Bahrain condemned Iran for what it says is interference in the country's internal affairs.
