Iman FM transmitted 25 hours of sermons from Anwar Al-Awlaki, a hate preacher killed by a US drone strike in 2011.
A complaint was made to Ofcom, which has suspended the Sheffield-based station's licence.
The watchdog said the material 'amounted to a direct call to action to members of the Muslim community to prepare for and carry out violent action against non-Muslim people'.
Bosses at Iman FM have 21 days to explain themselves or be closed down. They found the extremist lectures on YouTube and broadcast them during Ramadan.
Ofcom said Al-Awlaki, who was an American Muslim cleric of Yemeni descent, was an Al Qaeda leader, recruiter and trainer.
He is said to have inspired the Charlie Hebdo attack in Paris, an attempt to blow up an American airliner and the massacre of 13 people at Fort Hood in Texas.
The lectures were broadcast in English on June 14. In one, Al-Awlaki said: 'Prepare whatever strength you have for holy war in the cause of Allah. This is a form of worship.'
Under broadcasting rules hate speech must not be included in TV or radio programmes except where justified by context.
Iman FM claimed to be unaware of the preacher's background and said not all the material was checked before being aired.
The Ofcom ruling described this defence as 'not credible'.
Mohammad Mughal, the station's chief executive, said: 'This is very, very sad because none of us had any idea this lecture was preaching hatred.
'We are not just a Muslim radio station – we regularly feature Christian presenters.'