Pakistan's interim Prime Minister Mohammedmian Soomro was sworn by President General Pervez Musharraf in Islamabad Friday amid the country's continuing politicial crisis.

The military leader administered the oath taken by Soomro, who will steer the country to elections of new parliamentary assemblies in January under the current state of emergency.

"Pakistan has never seen such a smooth transition of government," Musharraf said at the ceremony in the presidential residence.

"I have introduced the essence of democracy, whether anyone believes it or not," he added.

Soomro, 67, a Musharraf loyalist, was appointed on Thursday night following the dissolution of the lower house of the parliament after it completed a five-year term at midnight.

The veteran banker is also the chairman of the upper house of parliament.

Meanwhile, the government of the central Punjab province lifted the house arrest of former prime minister and opposition leader Benazir Bhutto in the eastern city of Lahore.

"Her detention orders have been withdrawn and she is free to go wherever she wants," a senior police officer, Malik Muhammad Iqbal, told Deutsche Presse-Agentur dpa.

"Her house was declared as a sub-jail but now we have removed the prison administration and anyone can visit her," Iqbal said. However, police would remain deployed around the home for the security of the opposition leader.

Bhutto was placed under house arrest on Monday to prevent her from leading a "long march for democracy" to Islamabad against the imposition of emergency rule earlier this month.

Musharraf, an army general who took over in a bloodless coup in 1999, partially suspended the constitution, dissolved and replaced the Supreme Court bench, blocked national and foreign private news channels and presided over the arrests of thousands of opponents.

While he cited growing Islamic militancy as the reason for the step, his critics say it was aimed at preventing defiant top judges from overturning his October 6 re-election victory.

The new Supreme Court line-up is expected to rule on the validity of the polls in the coming days. Clearly anticipating a favourable verdict, Musharraf has said he will step down as army chief before he starts a new five-year term as a civilian president.

But the emergency measures have fuelled instability in the nuclear-armed country of 160 million people. Recent days saw countrywide protests by opposition workers, lawyers, rights activists and journalists, with police making more mass arrests in a broad crack-down.

The international community has condemned the actions and threatened to cut off financial aid to the government of Pakistan, a key ally in the war against terrorism, unless it restores democratic order.

Musharraf, a key US ally in its war on terrorism, responded by announcing that a caretaker government would be installed and that parliamentary elections will be held in early January as scheduled. But he said the emergency may continue through the polls.

The president defended his track record at the ceremony Friday.

"Under this government the country has moved forward. It has now one of the fastest growing economies. We are proud that we have made almost empty glass half full," he said.

But opposition parties rejected the caretaker government under Soomro, following earlier threats to boycott the elections.

"This is not a government of consensus," PPP Deputy Secretary General Raja Pervez Ashraf said.

The opposition had previously demanded a neutral interim government to ensure fair and free elections.