Malaysian opposition figure Anwar Ibrahim has been arrested for sodomy, his lawyer said on Wednesday, setting the stage for a political showdown that could further rattle the country's financial markets.

The former deputy premier had agreed to meet police on Wednesday in connection with a sodomy complaint lodged by a former aide, and police had warned they would arrest him if he did not show up for questioning.

Anwar's lawyers had said he would go to the police at 7 a.m. British time, but the arrest came about an hour before that.

"They say he was arrested under Section 377 of the Penal Code (sodomy)," Sankara Nair, Anwar's lawyer, said. "He was arrested as a suspect in the case. There was a lot of fear and intimidation. It's absolutely unnecessary."

Nair said police could detain Anwar for up to 24 hours, after which they would have to obtain a remand order from the court to allow further detention for up to 14 days without charging him.

Anwar, who is leading a charge by the opposition to seize power by September, is fighting the sodomy accusation, in a replay of scenes from a decade ago when he was jailed for sodomy and corruption.

The authorities sealed off roads to the police headquarters where Anwar had been brought, while a water cannon was on standby and a helicopter circled overhead, as the authorities braced for a possible repeat of 1998 protests when Anwar's arrest brought tens of thousands onto the streets.

About 400 Anwar supporters outside the police headquarters carried banners demanding his release and the arrest of deputy premier Najib Razak, while police in riot gear warned the crowd to disperse or face arrest.

"Don't provoke the people . why are police trying to test the people's patience?" Azmin Ali, a leader of Anwar's People Justice Party, said. "I am giving a very strong reminder to the police, don't provoke us."

Anwar's supporters have cast the sodomy allegation as an attempt by premier Abdullah Ahmad Badawi's government to prevent the opposition from gaining ground.

Federal criminal investigation chief Bakri Zinin confirmed that Anwar had been arrested but declined to elaborate.

TREMORS

The arrest is likely to spark more tremors in financial markets, which have groaned under the weight of a protracted political drama that includes allegations of sex and murder against a senior government politician.

"Investors will probably shy away for a while until these things settle," said Wee Kim Hong, head of research at M&A Securities. "I don't think anybody will want to commit to a long position for now."

Malaysia's ringgit fell to 3.2250 to the dollar from 3.2160 on Tuesday. Shares ended down 0.7 percent.

Anwar was sacked as deputy prime minister in 1998 and later jailed for corruption and sodomy after leading street protests against then premier Mahathir Mohamad's government during the Asian financial crisis.

The supreme court overturned the sodomy conviction six years later.

Other opposition leaders rallied behind Anwar.

"We will still work together very well," said Nasharudin Mat Isa, a leader of Parti Islam se-Malaysia (PAS). "This is going to even strengthen the coalition. This issue is going to create a new kind of movement among the public."

U.S. Ambassador to Malaysia James Keith said the arrest "raises serious questions and concerns", adding: "We urge Malaysian authorities to resolve this matter in a manner that enhances confidence in the rule of law in Malaysia."

Anwar had earlier on Wednesday appealed for his supporters to remain calm if he was arrested.

"I appeal to them to exercise patience and let us deal with this according to standard procedures," he said.

Abdullah's Barisan Nasional coalition is still trying to recover from a disastrous showing in a March general election, when it lost its two-thirds parliamentary majority and ceded five states to the opposition.

The government has denied the sodomy allegation was a political conspiracy.

"The purpose of the investigations is not to fix someone but is to really help him clear his name," Domestic Trade Minister Shahrir Samad said.