The 51-year-old, who had been pardoned for health reasons last year, was rearrested earlier this month as part of intensifying crackdown on government critics that has drawn protests from Washington and human rights groups.
Rajab, who heads the Bahrain Centre for Human Rights (BCHR), was taken to hospital on Tuesday with heart problems after two weeks in solitary confinement.
Defence lawyer Jalila al-Sayed said he was returned to prison but should undergo further tests on Wednesday.
"His situation is getting worse and is not stable at all," she told AFP, adding that he was due to appear before prosecutors later on Wednesday for a decision on whether his custody would be extended.
The BCHR issued a statement expressing "great concern for the health and well-being" of its head.
It said "the decline of his physical and mental health are due to his isolated detention since his arrest."
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It called on the "international community and Bahrain's allies to take urgent and public actions to stand by their commitment to protect human rights defenders."
When Rajab was rearrested earlier this month, Washington said it had complained directly to its Gulf ally.
The Shiite activist has been repeatedly detained for organising protests and publishing tweets deemed insulting to Bahrain's Sunni authorities.
Rajab previously served two years in jail on charges of taking part in unauthorised protests.
He is likely to face trial on July 12 on charges "probably related to tweets" which he is said to have either posted or retweeted, his lawyer said.
The tweets were allegedly made in March 2015 and were about unrest at the kingdom's Jaw prison and the conflict in Yemen, where a coalition led by neighbouring Saudi Arabia launched a military intervention that month, she added.
She said the defence team had yet to see a formal chargesheet.
Home to the US Navy's Fifth Fleet, Bahrain has been rocked by unrest since security forces crushed Shiite-led protests in 2011 demanding a constitutional monarchy and an elected prime minister.