I have wondered for some time now whether king as God's minister (Rom. 13), should be thought of as the chief deputy of God's Law on the earth. If this is correct, then a case could be made that since the priest is the primary minister of redemptive grace that church and state perform distinct but complementary roles within the New Covenant economy.
If the civil realm, like the “law,” fills an eschatological role, it doesn’t have to be the antithesis of the spiritual realm. It can serve as the taskmaster to lead us to the beginning and end of all things: Jesus. Paul says in Galatians 3:21, “Is the law then contrary to the promises of God? Certainly not! For if a law had been given that could give life, then righteousness would indeed be by the law.” The law, therefore, was not meant to give life in itself, but rather to point to the faith of Jesus, our true salvation. But further, abiding by the law directs us toward Christ. The law, and by extension the civil realm, was “sent by [God] to punish those who do evil and to praise those who do good,” (pre-)schooling us in the ways of grace.
St Paul says to Timothy:
We know that the law is good if one uses it properly. We also know that law is made not for the righteous but for lawbreakers and rebels, the ungodly and sinful, the unholy and irreligious; for those who kill their fathers or mothers, for murderers, for adulterers and perverts, for slave traders and liars and perjurers—and for whatever else is contrary to the sound doctrine that conforms to the glorious gospel of the blessed God, which he entrusted to me. (1 Tim. 1:8-11)
The proper use of the Law is in punishing and restraining sin. During the present age this power has been entrusted to the king, who acts as the agent of God's wrath (Rom. 13:4).
Here perhaps is a hint of the main thrust behind St. Paul's critique of the Law: that the Law in its civil character punishes and condemns, but cannot redeem. Earthly government is insufficiently equipped to produce righteousness and peace. The eternal city cannot be established through political efforts, as demonstrated by Israel's manifest failure, but has to be built "without hands" (Dan. 2:34ff.; cf. Heb. 11:10).
Earthly government can "make nothing perfect," though it can as a harsh taskmaster drive us to Christ. There is a proper use for government, but we must make sure we clearly delimit its role in light of the fact that the principalities and powers were put to shame at the cross (Col. 2:15).
Here, then, is the biblical basis for the institutional separation between church and state.
I challenge all who seek to uphold the Gospel and guard the prerogatives entrusted to the Church to likewise acknowledge and defend the proper role of the king as the supreme deputy of God's Law on earth till Christ returns, when all [earthly] dominion, authority and power will be abolished (1 Cor. 15:24).