At least one demonstrator was killed and others wounded, activists said.
Bahrain's Interior Ministry said the operation targeting Diraz, home to Sheikh Isa Qassim and a long-running sit-in supporting him, was to "maintain security and public order."
It called the area a "haven for wanted fugitives from justice."
Activists shared photographs and videos showing youths throwing stones and climbing on an armored personnel carrier. Gunfire could be heard in one video as white smoke from tear gas hung in the air.
"Forces were able to remove a series of illegal road blocks and barricades," the ministry said in a statement. "Police remain deployed in the area to ensure the safety of people."
Amnesty International later said Qassim was not arrested. At least one protester was killed, said Sayed Ahmed Alwadaei, the director of advocacy at the Bahrain Institute for Rights and Democracy. Activists shared images of other protesters suffering what appeared to be birdshot wounds.
Police have besieged Qassim's hometown of Diraz for months, tightly controlling access. He could be deported at any time after authorities stripped him of his citizenship last June over accusations that he fueled extremism. His supporters deny the allegations and called his trial politically motivated.
Shiites and others took part in 2011 Arab Spring protests for greater rights from the Sunni monarchy of Bahrain, home to the US Navy's 5th Fleet and an under-construction British naval base. Bahrain put down the protests with the help of forces from Saudi Arabia and the United Arab Emirates.
Meanwhile, activists have been imprisoned or forced into exile. Independent news gathering on the island also has grown more difficult, with the government refusing to accredit two Associated Press journalists and others .
Bahrain's King Hamad bin Isa Al Khalifa met with US President Donald Trump during a Sunday summit in Saudi Arabia.
Already, Trump's administration had approved a multibillion-dollar sale of F-16 fighter jets to Bahrain without the human rights conditions imposed by the State Department under President Barack Obama.
Iranian Foreign Minister Mohammad Javad Zarif tweeted today that the raid showed the "first concrete result of POTUS cozying up to despots in Riyadh."
Activists and rights group also warned Trump's embrace of Bahrain only will fuel the crackdown.
"The timing of this operation two days after King Hamad's convivial meeting with President Trump can hardly be a coincidence," said Nicholas McGeehan, a senior Bahrain researcher at Human Rights Watch.
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