Thailand's government has been disbanded and the Prime Minister barred from politics for five years in a court ruling that has prompted fears of a slide into civil war.

The Constitutional Court was widely expected to find the government guilty of electoral fraud and order its dissolution, but its ruling has renewed fears of violence and caused some to question whether the country has a functioning government anymore.

Hours before the court hearing a grenade was fired from a flyover near the domestic airport hours, killing one anti-government protester and wounding 22 people.

The Prime Minister, Somchai Wongsawat, will now step down, along with 36 other executives from his People Power Party, achieving a key goal of royalist demonstrators who have blockaded the capital’s two airports for the past week.

"My duty is over. I am now an ordinary citizen," Mr Somchai, 61, said in the northern city of Chiang Mai from where he has been governing since the airport blockade began.

The judgment could set the stage for the protesters to end their week-long airports siege. Earlier today, cargo flights resumed from the main international hub.

However, hopes that air traffic would quickly begin flowing again appeared to have been dashed this afternoon when the head of Thailand's airports said that Suvarnabhumi international airport, Bangkok's largest, would be closed to passenger flights until at least December 15 due to the disruption caused by protesters.

Acting director Serirat Prasutanont said that the country's main airport has lost more $10 million due to the weeklong closure. His statement said that the closure of the airport for passenger flights “is extended to 6pm on December 15.”

The ruling that the government had to resign came as hundreds of red-shirted pro-government supporters demonstrated noisily outside the court. They have already declared the ruling against the (PPP) as a "coup in disguise".

But it was greeted with delight by the militant People's Alliance for Democracy (PAD) who have been trying to topple Mr Somchai's government for months. They have occupied Government House since August as well as the airports in a last ditch bid to topple Mr Somchai, whom they accuse of being a pawn for his brother-in-law, former premier Thaksin Shinawatra.

Mr Thaksin was ousted in a 2006 coup and is now in exile after being convicted of corruption.

"My heart is happy. My friends are very happy," said Pailin Jampapong, a 41-year-old Bangkok housekeeper choking back tears as she jumped up and down.

Nattawut Sai-kau, a government spokesman, said Mr Somchai and his six-party coalition would step down.

‘We will abide by the law. The coalition parties will meet together to plan for its next move soon,’ he said.

However, fears of violent clashes, or worse, are growing. "It now seems that violence cannot be avoided. Some even predict what has been unthinkable for 700 years: a civil war," the Bangkok Post said in an editorial. It added: "Does Thailand have a functioning government?"

The ruling on allegations of vote fraud in the December 2007 election will not necessarily mean a snap election as many PPP MPs will simply switch to a new ‘shell’ party already set up.

The electoral fraud case was scheduled to be heard at the Constitutional Courthouse in Bangkok on Tuesday, but authorities moved it after hundreds of red-shirted government supporters surrounded the building.

The PAD blockade of the airports has stranded hundreds of thousands of tourists in Thailand, devastating the country's tourist industry and threatening its fragile economy. The government confirmed today it would postpone the ASEAN summit of Asian leaders, due to take place in Thailand in mid December.

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