"The court decided to close the Welfare Party because of evidence confirming its actions against the principles of the secular republic," court chairman Ahmet Necdet Sezer said.
The attorney-general had accused the biggest party in parliament of threatening the official secularist order after attempting to boost the role of Islam in public life during a year at the head of the country's first Islamist- led government.
Mr Erbakan spent a stormy year as prime minister until his coalition collapsed last June in an anti-Islamist campaign inspired by the secularist army.
The court banned six top Islamist MPs from political leadership for five years.
"The court voted unanimously that Necmettin Erbakan ... should be forbidden from being a founding member, administrator or auditor of another party for a period of five years," Mr Sezer said.
Mr Erbakan earlier held talks with the secularist Prime Minister, Mesut Yilmaz, in an apparent attempt to avoid a ban on him by means of a legal loophole under which he could possibly stand for re-election as an independent MP.
Welfare's assets will now automatically be seized by the treasury. Two previous parties led by Mr Erbakan were also closed in the wake of military coups in 1971 and 1980.
Senior members of Welfare condemned the move. "This decision has no relation to justice, it is a purely political decision," said the party's deputy and former justice minister, Sevket Kazan.
"This decision casts a shadow over Turkish democracy," said Abdullah Gul, a Welfare deputy and aide to Mr Erbakan "It is questionable whether justice is independent in Turkey."
Mr Erbakan said he would appeal to the European Court of Human Rights. "The decision [to close Welfare] by the constitutional court will definitely go the European Court of Human Rights," he told a news conference in parliament.
In his nearly 30-year political journey to press for a stronger role for Islam in Turkish society, Mr Erbakan survived party closures, a coup, jail and exile. The latest blow, however, could mark his finale.
"He may not be active in politics but he will remain our hero who fought for democracy," said Mr Gul.
With the mixture of Islamic and Western styles, Mr Erbakan symbolises the conundrum of many Turks stuck between the values of East and West. His Versace silk ties and French and Italian suits became a trademark. But his wife and two daughters cover their heads in accordance with Islamic tradition.
Mr Erbakan also displayed strong political pragmatism, allowing him to appease the hard-line Islamists in his party while not totally alienating the military and other protectors of Turkey's secular policies.Reuse content