Oman was the last country in the six-nation Gulf Cooperation Council to introduce Islamic finance, granting licences to Al Izz Islamic Bank and Bank Nizwa in 2013.

Since then the industry has been expanding rapidly; as of January, total assets held by the two banks and the Islamic units of conventional banks accounted for about 5 percent of total banking assets, central bank data showed.

The creation of a separate Islamic banking department appears to clear the way for two steps seen as critical to the long-term development of the industry: issuance of sovereign Islamic bonds, and the introduction of sharia-compliant money market tools.

The government has said it plans to sell its first sukuk, an issue of 200 million rials ($520 million), in coming months, while a central bank task force has been studying Islamic money market operations.

The central bank's statement on Wednesday said the new department would handle all Islamic banking matters, though the existing examination and surveillance departments would continue their supervision of banks.