Ruling on complaints filed by Mr. Erdogan’s Justice and Development Party, or AKP, the election board said a new vote was necessary because fraud and irregularities had material influence on the March 31 results in Istanbul. The ruling is final and can’t be challenged in court.
Mr. Erdogan had thrown his weight behind the AKP’s fraud claims, calling for a rerun.
“Fraud and corruption are evident here,” the president said in a speech on Saturday. “Let’s return to the ballot boxes.”
The election board canceled the mandate of Ekrem Imamoglu, the candidate from the social-democratic Republican People’s Party, or CHP, who had been sworn in as Istanbul mayor, and set the new vote for June 23. The government is expected to appoint a caretaker in the interim.
Mr. Imamoglu condemned the ruling, saying he would travel to Ankara on Tuesday to consult with CHP leaders and decide on a course of action.
“Do not lose hope,” he told supporters.
A repeat election in Istanbul could set the stage for a brutal confrontation between an increasingly authoritarian Mr. Erdogan and an emboldened opposition, which won control of the capital Ankara and several other large cities in the municipal election. In some Istanbul neighborhoods, supporters of Mr. Imamoglu opened their windows late Monday, and banged pots with wooden spoons shouting “YSK resign,” referring to the election board’s Turkish initials.
Economists voiced concerns that a new round of campaigning would prevent the government from focusing on its pledge to repair a Turkish economy mired in recession and beset by a weakening lira.
“This leaves Turkish markets and the economy vulnerable in the period to rerun elections,” said Timothy Ash, an emerging-market strategist at BlueBay Asset Management in London.
The decision comes as Turkey is locked in a dispute with the U.S., which has threatened to punish Ankara with sanctions over its planned purchase of a Russian antiaircraft missile system on the grounds it would create unacceptable security risks. Turkish authorities say U.S. concerns are unwarranted.
CHP leaders called Mr. Erdogan a “bad loser,” saying the fraud claims were groundless and that AKP was trying to preserve control over Turkey’s largest city and its colossal budget.
“It is legal to run against the AKP, but illegal to win against them,” CHP Deputy Chairman Onursal Adiguzel said in a tweet. “This is plain dictatorship.”
At issue, according to complaints filed by Mr. Erdogan’s AKP, is the alleged disloyalty of officials in charge of overseeing vote counting at polling stations. The CHP said the claim doesn’t make sense because the AKP had no grievance toward the same officials when they validated Mr. Erdogan’s victory in last year’s presidential election.
Immediately after the March 31 vote, Mr. Erdogan had given the impression he would concede the loss of Istanbul, saying defeat was part of democracy.
In recent weeks, however, the president intensified calls for a rerun, citing Mr. Imamoglu’s thin victory margin of 13,729 votes out of nearly nine million ballots cast and the alleged fraud.
Losing control of Istanbul deprived the AKP of its historical bastion, in a city Mr. Erdogan ran from 1994 to 1998. It also cut off the party from a well-honed system of political patronage based on a network of charities and social-welfare associations financed with donations from the city and large corporations.
Allowing Mr. Imamoglu to take control of a city of 16 million people, with a $4 billion annual budget and a staff of 82,000, risked spawning a powerful rival for the next presidential election, in 2023, said Soner Cagaptay, director of the Turkish Research Program at the Washington Institute think tank.
“It was too big for Mr. Erdogan to lose,” Mr. Cagaptay said.
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