"It needs to be accepted that the party became a focus of anti-secular activities due to its move to change some articles of the Turkish constitution," the court said referring to an AK Party-driven attempt to lift a ban on the wearing of Muslim headscarves at universities.
In a setback to the AK Party, the constitutional court in June overturned an amendment to lift the restriction, saying it violated Turkey's secular constitution.
The court's unexpectedly harsh criticism against Erdogan, who remains Turkey's most popular politician according to recent opinion polls, is likely to renew tensions at a time when it is fighting to limit the impact of a global financial crisis.
The court dismissed in July the prosecutor's case to have the AK Party closed down and to bar Erdogan and other leading members from party activity for five years.
The AK Party has been locked in a battle with Turkey's powerful secularist establishment, including judges and army generals, since it first came to power in 2002.
Secularists say the party is seeking to bring back religion to public life, contrary to the constitution.
The AK Party, which won a sweeping re-election last year, denies it has any Islamist agenda.
Cengiz Aktar, a journalist from the English daily newspaper, the Turkish Daily News based in Istanbul, told Al Jazeera: "It is a very interesting 772 page report, because we see that ten out of eleven judges found that the AKP party, worked against the sacrosanct principle of secularism in this country.
"But they didn't go far enough to close the party down, because they found [the AKP] did not invoke any violence to change the regime.
"They preferred rather to give a penalty to the party ... they will pay back half of their treasury aid, something like $13 million, which is not very harmful to the party.
"But is had reignited the debate on the nature of the regime and the role of the constitutional court," he said.