By Aamer Mohammed MANAMA (Reuters) - A Bahraini court has ordered a retrial for jailed hunger striker Abdulhadi al-Khawaja and 20 other men convicted of leading an uprising last year, but an opposition leader said the gesture was not enough to defuse resurgent unrest. The turmoil threatens the stability of Bahrain, an ally of Saudi Arabia and the United States in their stand-off with Iran, and sparked Saudi calls for a union of oil-exporting Gulf Arab states to keep Tehran and regional protest movements at bay. Following international calls for meaningful democratic reforms and a release of jailed dissidents in Bahrain, a Manama court ruled that 21 protest leaders convicted in a closed-door military court should be retried in a civilian chamber. But the Cassation Court ruled that those now in prison - eight of whom, including Khawaja, were given life sentences for trying to overthrow the state -- must remain there pending a verdict in a new trial. International rights groups and the families of the incarcerated opposition figures have said all of them should be freed without conditions. This ruling is just a step in the right direction, but the street will not calm down until all the prisoners are freed. This is just a part of it," said Sayed Hadi al-Mousawi, a senior official from leading opposition party Wefaq. Khawaja has been refusing food for nearly three months and is at risk of dying, according to his family. But his wife, Khadija al-Mousawi, said on Monday his hunger strike would continue despite the decision to grant him a retrial. "If they are serious they should set them free and then retry them," she said. My husband is going through the whole thing again, remembering the horrible episode of torture, attempt to rape and sexual abuse. Mousawi said she saw Khawaja on Sunday after a week of rejected requests and said afterwards he was being force-fed intravenously. The government denied this, saying he was willingly taking nutrients. Khawaja's wife said the authorities were doing only the minimum necessary to rebuff international criticism. Khawaja's daughter Zainab has been in detention for over a week for trying to protest in Manama during Bahrain's Grand Prix motor race this month, an event that re-focused international attention on the democracy movement. Bahrain's long-ruling Al Khalifa family initially crushed mass pro-democracy unrest a year ago after calling in Saudi and United Arab Emirates military forces for help. But Bahraini authorities are now grappling once again with daily disturbances by disgruntled majority Shi'ite Muslims, with police firing tear gas, sound grenades and birdshot and youths throwing petrol bombs, iron rods and stones. The economy of the Sunni Muslim-ruled state has taken a major hit, with crucial banking and tourism sectors shriveling. The 21 convicted men - none of whom appeared in court - are believed to be among hundreds that an international rights commission said in November were tortured during a period of martial law imposed to help quell the uprising. They were sentenced by a military court last year for organizing the protests that shook Bahrain's monarchy and a military appeals court upheld the sentences in September. The main charge was "forming a terrorist group with intent to overturn the system of government," but also included collaborating with a foreign state - an apparent reference to Shi'ite giant Iran across the Gulf. Eight members of the group received life sentences, including Khawaja and opposition leaders Hassan Mushaimaa and Abdulwahhab Hussein, who had expressed support for turning the Gulf Arab monarchy into a republic. Another seven were convicted in absentia, including blogger Ali Abdulemam who was given a 15-year sentence and is in hiding. "The court is (ordering) that the trial take place again and that testimony from prosecution and defense witnesses be heard once more as if it is a new trial," the official Bahraini News Agency (BNA) said on Monday. "Cassation Court rulings do not allow for releasing defendants as long as they were imprisoned during the first trial," it said, something the judge confirmed in court. Michael Stephens of the Royal United Services Institute in Qatar said the verdict suggested international campaigning for Khawaja, also a Danish national, had had an effect. They thought the whole storm would blow over and the public relations damage over Khawaja would go away. So this is a concession, though we have to wait and see what comes of it," he said. Khawaja has become the main PR weapon for the opposition right now, so the government is trying to defuse the situation. Danish Foreign Minister Willy Sovndal praised the verdict but said it was just a start. He also called for a resumption of access to the Khawaja, who is respected by international rights groups but dubbed a Shi'ite Islamist by some Bahrainis. The case is not finished and we continue the diplomatic efforts. We will continue to be in regular contact with the Bahraini authorities and with the wide international circle of countries and organizations which support us in this case, until a final solution has been found," Sovndal told Reuters. Now it is of course decisive that the Danish ambassador immediately regains access to visit Abdulhadi al-Khawaja. Although the government accused the protesters of having Shi'ite sectarian aims, the activists include Sunni Muslim Ibrahim Sharif, leader of the secular opposition party Waad. Sharif was serving a five-year term. Bahraini Shi'ites, who deny being steered by Iran, complain of systemic political and economic discrimination. The government denies this, saying many Shi'ites hold government positions and help run the economy. Bahraini authorities say they have begun police and judicial reforms to defuse discontent. But there has been no progress on the centerpiece of opposition demands: a parliament with full powers to legislate and form governments. Additional reporting by Andrew Hammond and Mette Fraende; Writing by Andrew Hammond; Editing by Reed Stevenson and Mark Heinrich