Bahraini security forces opened fire on anti-regime protesters in the capital, with reports of up to 55 wounded, after the army vowed "strict measures" to restore order after a deadly police raid.
Crown Prince Salman bin Hamad al-Khalifa promised to open a national dialogue once calm returns, and soon after King Hamad formally announced that he had assigned him to start those discussions.
US President Barack Obama Friday spoke to King Hamad and condemned violence by government forces.
Obama also warned in the call that the United States believed the stability of the Western-leaning Gulf kingdom which houses the headquarters of the US Fifth Fleet depended on a process of meaningful political reform.
The US leader "reiterated his condemnation of the violence used against peaceful protesters, and strongly urged the government of Bahrain to show restraint, and to hold those responsible for the violence accountable," a statement said.
The prospect of a prolonged crisis raises fears of a potential flashpoint between Iran and its Gulf Arab rivals, if the Islamic republic attempts to capitalise on the Shiite-led protest.
Iran "condemned the violent confrontation" and asked the Bahraini government to show self-restraint, the state broadcaster's website quoted foreign ministry spokesman Ramin Mehmanparast as saying.
Hardliners in predominantly Shiite Iran have often expressed kinship and support for Bahrain's Shiites, whose leadership stresses its allegiance to Bahrain.
Marchers had been trying to reach Pearl Square, the epicentre of pro-democracy protests that have shaken the Gulf island state, when the forces opened fire.
Witnesses said the gunfire was targeting them near Salmaniya hospital, about two kilometres (one mile) to the south.
"In total, 55 wounded, including four badly hurt, have been admitted to Salmaniya hospital," said Shiite opposition MP Abdel Jalil Khalil Ibrahim.
Among them was a man who was clinically dead after being hit in the head by a bullet, Ibrahim said.
In contrast, state television said seven people had been lightly wounded and that most had been treated and released.
Another opposition MP, Ali al-Aswad, accused the army of doing the shooting. Initially, witnesses had said it was the police.
"The army fired live bullets at more than one thousand people who wanted to reach the Pearl" Square, Aswad said.
This was the first demonstration since police stormed the square before dawn on Thursday, killing four people and wounding around 200.
Following that raid, which was widely condemned abroad, troops were deployed in Manama, and the defence ministry warned that the army would "take all strict and preventive measures to restore security and public order."
In a television interview, Prince Salman said "our dialogue must take place in a climate of total calm," adding that "no issue can be excluded from that dialogue."
"What is happening today in Bahrain is not acceptable... We have reached a dangerous stage that necessitates that each of us acknowledges the responsibilities... Bahrain today is divided."
In a statement read on state television, King Hamad charged Prince Salman with starting a "dialogue with all sides and groups in the kingdom with no exceptions."
"We have given him all the powers needed to reach the aspirations of all esteemed citizens," he added, urging all sides to "cooperate faithfully" with him.
The statement made no mention of the latest violence.
Earlier, angry Shiites in the nearby villages of Sitra and Karzakan buried the four people killed on Thursday.
Thousands of mourners chanted slogans calling for the ouster of the Sunni al-Khalifa dynasty's regime, and sang songs urging unity between the Shiite majority and Sunni compatriots.
They shouted "people want to overthrow the regime" -- the slogan used by protesters across the Arab world inspired by uprisings in Tunisia and Egypt that brought down the strongmen of those two Western-backed countries.
A large banner carried in front of the funeral procession of victim Ali Mumen condemned concerns by Formula One chief Bernie Ecclestone that next month's Bahrain Grand Prix would be affected by the political upheavals.
"Mr Ecclestone, are our lives a price for your Formula One?" it asked, in English.
"No Sunnis. No Shiites, only national unity," chanted mourners.
Shiites complain of discrimination and face suspicion over their loyalty to Bahrain, amid Gulf fears of Iranian attempts to use Shiites to destabilize the staunch US-allied Sunni monarchies.
Mumen's family showed his body to journalists, and an AFP reporter said it had numerous buckshot wounds.
"I call upon my Sunni brothers to express solidarity. Otherwise, they will be the next (victims)," said his father, Ali.
Meanwhile, hundreds of pro-regime demonstrators marched in Manama after Friday prayers, denouncing the opposition and pledging allegiance to the king.
Britain revoked 44 licenses for the export of security equipment to Bahrain because of the risk it might be used to suppress anti-regime protests, the foreign office said.
France also suspended exports of security equipment.
Bahrain's opposition wants the ruling family to give up its grip over government posts.
On Thursday, the Shiite-led opposition raised the stakes. Sheikh Ali Salman, head of the Islamic National Accord Association, which has the largest single parliamentary bloc, demanded a "real constitutional monarchy."
Salman demanded the resignation of the widely despised Prime Minister Sheikh Khalifa bin Salman, King Hamad's uncle who has been in office since 1971.