General Musharraf, a close US ally and leader of the only nuclear-armed Islamic nation, looks set to win re-election on Saturday in votes by the two-chamber Parliament and four provincial assemblies.

While more than 80 opposition members of parliament resigned to protest against his re-election bid, dropping the cases against former prime minister Bhutto is likely to convince her assembly members to at least take part in the vote, giving it vital credibility.

The decision to grant immunity to Bhutto and other civilian leaders was made at a meeting chaired by Prime Minister Shaukat Aziz, a government minister said.

Hassan Ahmed Bukhari, UK president of Bhutto's Pakistan Peoples Party (PPP), reacted cautiously to the news.

"Sometimes they make the statements just to create more confusion. It could be just that, it could be just a bit of disinformation from the government," he said.

Bukhari insisted the news would have no bearing on the PPP's decision on how to behave in Saturday's vote.

"The party will make that decision on a matter of principle," he said on the eve of a PPP meeting in London that will discuss strategy ahead of the re-election vote and Bhutto's planned Oct. 18 return to Pakistan to contest upcoming Parliamentary elections, ending eight years of self-exile.

Musharraf has vowed that, if re-elected, he would quit as Army Chief before being sworn in for a new term by Nov 15.

The appointment of Lieutenant-General Ashfaq Parvez Kayani deputy army chief and designation as Musharraf's successor is the clearest indication yet Musharraf will follow through with his promise and give up his uniform.

"General Kayani will take over as chief of the army staff after this post falls vacant," a military official said.

Chain-smoking Kayani had been director-general of the military's main security agency, the Inter-Services Intelligence agency, until last month. He is well-regarded by US counterparts, Western diplomats say.

Pakistan is an important non-NATO ally for the United States. Its support is regarded as crucial for the success of Western military efforts in Afghanistan, and in the hunt for Osama bin Laden's al-Qaeda in tribal areas on the Afghan border.

Kayani was Deputy Military Secretary to then Prime Minister Benazir Bhutto during her first government in the late 1980s.

Bhutto has been in talks with Musharraf on a power-sharing deal and Kayani was involved in the discussions.

One of her main demands has been that she and other civilian officials be given immunity from prosecution.

'AGAINST DICTATORSHIP'

Despite slumping popularity and last-minute legal challenges, Musharraf is expected to win Saturday's vote.

His ruling coalition holds a majority in Parliament, which is due to be dissolved next month before a general election due by mid-January.

Apparently unable to derail Musharraf's re-election plans, members of an opposition alliance led by the party of former prime minster Nawaz Sharif quit the national and provincial assemblies in protest on Tuesday.

The National Assembly speaker said 85 members of the 342-seat lower house resigned.

But Bhutto's party, the biggest opposition party, has not joined the walk-out, although she has said her members might unless her demands for democratic reforms were met.

The walk-out will not derail the vote, even if Bhutto's party joins, but it will detract from its credibility. Bhutto has insisted that Musharraf run for re-election as a civilian.

But one minister said the government still had reservations about another main demand from two-time Prime Minister Bhutto -- that a ban on a third term for Prime Ministers be lifted.

In a major boost to Musharraf last week, the Supreme Court dismissed challenges to his re-election while still army chief. The Election Commission also rejected opposition objections.

Nevertheless, lawyers for Musharraf's two main presidential rivals filed fresh challenges in the Supreme Court in a last-ditch bid to block him, saying as army chief he was ineligible and the vote should be held after general elections.