The Department of Civil Aviation in Malaysia has revoked the air operator certificate Rayani Air.
The carrier, which had branded itself as the first sharia compliant airline in the world, will subsequently lose its right to fly in and out of the country.
DCA officials took the decision to ground the carrier following an investigation into the administration and safety standards of the airline.
In a separate statement, the Malaysian Aviation Commission announced that it had revoked Rayani Air’s air service licence.
The commission said it found Rayani Air in breach of conditions of its licence and that it lacked the financial and management capacity to operate a commercial airline.
The commission added that Rayani Air is still liable to refund ticket holders whom have not flown with the airline due to this action.
In the event consumers are not able to obtain their refunds, they can file a civil suit for those refunds.
Rayani Air launched last December offering only halal food, no alcohol and crew wearing modest clothing.
The carrier operated two Boeing 737-400 planes, each able to carry about 180 passengers, eight pilots and 50 crew.
Based on the island of Langkawi, Rayani Air had offered services to the capital, Kuala Lumpur, and the northern city of Kota Bahru.