The central bank took over the management of FBME Bank in July 2014 following a report from the US Treasury's Financial Crimes Enforcement Network (FinCEN) describing the bank as a "primary money laundering concern."
The Tanzanian-registered bank mounted a legal challenge against the allegations, but a US court ruled in favour of FinCEN in April, allowing it to shut the bank out of accessing the US financial system.
The decision also paved the way for the central bank to revoke the bank's license, officials said.
"The Bank of Tanzania has discontinued all banking operations of FBME Bank Ltd, revoked its banking business license and placed it under liquidation," the central bank said in a statement.
It said it had appointed the Deposit Insurance Board as a liquidator.
FBME, which according to its website specialises in cross-border transactions, commercial trading and foreign exchange services, did not respond immediately to a request for comment.
FBME Bank is registered in the country but has been conducting most of its business operations
BoT first placed FBME under its supervision in July 2014 after the bank came under investigation in the United States for money laundering allegations.
Sources close to the government then said the BoT was expected to take additional measures against the FBME after it was cut off from the American banking system.
After a three-year court battle, a US district court judge in Washington, DC put the alleged rogue Tanzanian bank out of business.
The bank was accused of laundering money through its Cyprus branch for a failed Indonesian bank, the Russian Mafia, the Lebanon-based Shi’a Islamist group Hezbollah, al Qaeda and a long list of others.
US District Judge Christopher Cooper, in a ruling granted a motion by the US Financial Crimes Enforcement Network (FinCEN) – the US Treasury Department’s lead financial money-laundering combatant – to bar FBME Bank from US operations.
The so-called “Fifth Special Measure” of the Patriot Act blocks FBME from doing business in the United States or using US dollars and prohibits domestic financial institutions from opening or maintaining correspondent bank accounts on behalf of FBME.
FBME featured prominently in Asian media reports regarding the alleged laundering of hundreds of millions of dollars out of Indonesia for what was first known as Bank Century, then Bank Mutiara.
The bank was later sold to a Japan-based concern and is now known as J Trust Bank. The parent’s investors include Wilbur Ross, the Commerce Secretary in the Trump administration and the California Public Employees Retirement System.