Mahathir removed Anwar as finance minister and deputy prime minister on Wednesday in a move that put Malaysia on a political knife edge.

The prime minister gave no reasons for the sacking, but the federal police chief said Anwar was under investigation over allegations, published in a book, of sexual impropriety.

Anwar has denied the allegations and sued the author for defamation. A court recently banned distribution of the book, ``Fifty reasons why Anwar cannot be prime minister,'' pending the suit.

Anwar remained in his official residence, surrounded by police guards carrying M-16 rifles, on Thursday.

Although he has made no public statement since his sacking,he told about 1,000 of his supporters in the early hours of the morning to remain calm.

The official Bernama news agency said the former finance minister, once Mahathir's heir apparent, planned to hold a news conference at 3 pm (0700 GMT) at his nearby residence.

But there was widespread speculation that he would be arrested as part of a broader roundup of politicians and, some said, businessmen.

An Indonesian newspaper quoted Anwar as saying he would not step down as deputy leader of the nation's dominant party, the United Malays National Organisation (UMNO). Anwar was sacked from the government when he rejected an ultimatum from Mahathir ordering him to quit.

``I will disclose what really happened in the government. I will not step down from UMNO,'' Jakarta's Kompas newspaper quoted Anwar as saying on Wednesday. There was no confirmation of the statement.

UMNO's top decision-making body was set to meet at 8 pm (2000 GMT), and political sources said the supreme council was expected to dismiss Anwar from his deputy leadership post.

Mahathir sacked Anwar, 51, hours after the government imposed a fixed exchange rate regime that trampled on Anwar's free market views.

The dramatic move brought tensions between the two leaders to a head and underscored divisions over economic policy and the nation's political future, government officials and market analysts said.

Several dozen riot police had taken position around Mahathir's official residence on Wednesday after supporters began streaming into Anwar's house, next to the prime minister's.

Witnesses said there were many fewer police outside both residences on Thursday, and police were preventing cars from parking on the road leading to Anwar's house.

Inspector-General Abdul Rahim Noor said late on Wednesday that police had been stationed outside Anwar's offices to prevent the removal of government documents. But the police chief denied that Anwar was under house arrest.

The chief of the ruling coalition's youth wing Ahmad Zahid Hamidi, who is close to Anwar, on Thursday said the youth wing viewed the latest developments with ``serious concern.''

Ahmad provoked Mahathir at the UMNO annual general assembly in June when he denounced cronyism in the party. Anwar was widely seen as backing Ahmad's attack.

Trade minister Rafidah Aziz said Mahathir had a ``very strong'' reason for sacking Anwar.

``Actually it goes to show that nobody is above the law, that where the law applies does not matter, be it a small or a big man,'' she said without elaborating.