"Based on the verdict issued by the press supervisory board, Bahar newspaper has been banned and its case has been referred to the judiciary," Mehr news agency quoted press watchdog head Alaedin Zohourian as saying.
Bahar has issued an apology note, saying publishing an article last week was an "unintentional mistake", and it temporarily suspended activities on Saturday to "ease the tensions".
"The article which has sadly hurt the feelings of the believers was published due to a technical error ... Editorial has apologised several times and criticised the article to show it was contrary to Bahar (political) line," read its statement.
"Besides deviating the history of Islam, it played a role in creating religious conflict in the country," official news agency IRNA quoted Janati as saying.
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A leading reformist, Mohammad Reza Aref, also criticised the article. "Reformist media should act wisely and should not give an excuse to rivals who seek to undermine the reformist camp," he said.
Iran's new president Rouhani, who has the support of reformists and moderates, pledged to work for more social freedom during his election campaign.