The governing body of the school situated in suburban river port city of Narayanganj which had sacked Shyamal Kanti Bhakta for "insulting Islam" and "unauthorised absence" was also scrapped.
"He (headmaster) is a victim of injustice and his dismissal was not legitimate... So orders have been issued for his reinstatement and dissolution of the school's managing committee itself," education minister Nurul Islam Nahid told a news briefing.
Bhakta was beaten up by local people apparently at the instigation of the school's governing committee which rallied support of an influential lawmaker of the constituency, who ordered him to do sit-ups in public holding his ears for allegedly making "derogatory remarks" about Islam.
However, the minister said that the inquiry committee found the allegations brought against Bhakta as "untrue".
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The managing committee two days ago sacked Bhakta, saying he had "physically tortured students, received money in the name of teachers' appointment, made derogatory comments about Islam, remained absent without leave and used to be late at work".
A video footage widely shared on the Facebook showed Member of Parliament (MP) Selim Osman ordering him to do sit- ups holding his ears.
Several social groups including an apex organisation of university teachers demanded that the lawmaker must seek apology to the traumatised schoolteacher, who is now being treated at a local hospital under police protection.
Osman, a lawmaker from the opposition Jatiya Party who is known for his links in the government, had earlier said that "what I did was to save him (teacher) from public wrath as there was no other way to save him".
Nahid, however, avoided a direct comment on Osman at the press conference, saying "we have received the probe report yesterday and actions will be taken accordingly".
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The body had earlier termed the incident as the "highest form of savagery".
Angry posts flooded Facebook, with scores of protestors launching a #SorrySir campaign. The protestors changed their profile pictures on the social network with photos in which they were seen holding their own ears with a "sorry sir" caption, in a stunning show of solidarity with the headmaster.
"I have been working at the school since it opened 18 years ago. Now I am a victim of conspiracy... The whole thing has been stage-managed," he said without making any reference to the MP.
The Osman family enjoys massive clout in the port town while the MP's younger brother was also a lawmaker from a neighbouring constituency.