The decision in the Strasbourg-based Parliamentary Assembly of the Council of Europe was approved on a vote of 113-45 after a nearly three-hour debate.
The assembly's monitoring committee raised concerns over constitutional amendments that were approved this month in a national referendum amid a state of emergency.
Turkey rapporteur Marianne Mikko said today the amendments, which significantly expand the powers of the presidency, "do not comply with our fundamental and common understanding of democracy. "
It pointed to the detention of parliamentarians and journalists and the sweeping dismissals of civil servants allegedly linked to the coup.
Mikko also expressed disappointment that Turkish authorities were considering the re-introduction of the death penalty.
Turkey, a founding member of the Council of Europe, had been under post-monitoring dialogue since 2004.
Turkey's Ministry of Foreign Affairs swiftly condemned the decision as a "disgrace" and dismissed its motives as "political."
"Such a decision leaves no choice to Turkey but to reconsider its relations with PACE," the ministry said. In Ankara, the minister in charge of relations with the EU, slammed the resolution describing it as an "unfair and unjust decision."
"This is a historic mistake for the Council of Europe and for the Parliamentary Assembly," Omer Celik said.
He said the grouping should have instead shown solidarity with Turkey over its efforts to "find an equilibrium between freedoms and security" as it is combats "terror" groups.
The watchdog's Turkey researcher, Andrew Gardner, said it "sends a clear and powerful message that Turkey must end its crackdown on human rights.
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