ISLAMABAD - Pakistan's Supreme Court ruled on Thursday that exiled former prime minister Nawaz Sharif can return home after seven years in exile, the chief of the court said.

Sharif, a two-time prime minister, has vowed to oppose a bid by President Pervez Musharraf for another term in office. Sharif, 57, was overthrown by army chief Musharraf in a 1999 coup.

"They have an inalienable right to come back and stay in the country," Chief Justice Iftikhar Chaudhry told the court, referring to Sharif and his brother, Shahbaz Sharif, who is also a politician and was exiled with his brother in 2000.

The court called on the government not to obstruct their return in any way, Chaudhry said. Both brothers are in London.

The timing of a return by Sharif could hardly be more awkward for Musharraf, who is expected to seek re-election from the national and provincial assemblies between mid-September and mid-October and hold parliamentary elections within months.

After the 1999 coup, Musharraf co-opted the rump of Sharif's Pakistan Muslim League (PML) to form his own political base, and analysts say that could splinter if Sharif were to return.

A senior PML member said Nawaz Sharif would meet party colleagues in London and decide when he would return to Pakistan, where he still faces corruption charges.

"It's a landmark decision that will have a far-reaching impact on politics in Pakistan," PML chairman Raja Zafar-ul-Haq told Reuters.

Hundreds of jubilant Sharif supporters chanted "go Musharraf, go!" outside the Supreme Court.

Sharif and Benazir Bhutto, another former prime minister in exile, are both hoping to come home and take part in the general elections that Musharraf has promised will be free and fair.

"It's a great day for democracy and rule of law and for the fundamental rights of the people of Pakistan. The Supreme Court has delivered justice," said Nadir Chaudhri, spokesman for Sharif, speaking in London.

A government minister said the court decision was right.

"They are part of the nation, part of Pakistan's politics and there should be no restriction on their returning and taking part in the general election," Railways Minister Sheikh Rashid Ahmed told Geo Television.

ELECTIONS DUE

Sharif was sentenced to life in prison on various charges after he was overthrown. He and his family later went to Saudi Arabia after the government said he had agreed to 10 years of exile.

But Sharif denied any such agreement with the government had been reached and filed a petition in the top court seeking to clear the way for the return of himself and his family.

A spokeswoman for Bhutto's Pakistan People's Party also welcomed the court ruling.

"We welcome the decision. He was twice elected prime minister and he is a leader in his own right," she said,

"All exiled prime ministers should be allowed to come back to Pakistan with dignity and the respect due to them."

Bhutto has been in negotiations with Musharraf on a power-sharing deal but Sharif has criticised her efforts and called on her to join efforts to bring an end to Musharraf's rule.

Political worry has hurt confidence on Pakistan's main stock market. The Karachi Stock Exchange benchmark index fell more than 3 percent on Thursday but recovered some ground late to end just over 2.5 percent down before the court ruling.

The index has lost almost 5.5 percent since the start of the week but is still 19.54 percent higher than it was at the start of the year.