The lira's value leaped on news of the decision.
There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.
"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it added, explaining the hike.
The currency has plunged in recent months and even after Thursday's rise was down nearly 39% against the dollar this year.
"Deterioration in the pricing behaviour continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions", the bank added.
He also decreed that local property sales, rental contracts and leasing transactions could no longer be conducted in foreign currency, in a fresh bid to buttress the flagging lira.
"Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement".More news: Tiny Georgia university cuts ties with Nike after awesome Kaepernick ad
The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.
The move came despite Mr Erdogan repeating his opposition to high interest rates earlier in the day.
But Erdogan - who has been accused by critics of pressuring the nominally independent central bank - had earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.
"The Governing Council expects the key European Central Bank interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary", it said, repeating its guidance. But it still expects to end its 2.6 trillion euro asset purchase scheme by the end of the year, suggesting that a formal decision on ending quantitative easing will come later. The rate hike could squeeze growth further, but independent experts say it is needed to contain inflation of about 18% and support the currency.
The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility - the emergency overnight borrowing rate for banks - remains at 0.25 percent.
"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.
Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the USA as well as sanctions over the detention of an American evangelical pastor.