Benazir Bhutto was freed on Friday just hours before the interim prime minister was named by President Pervez Musharraf in order to oversee the elections.

Police officers left the residence from Lahore, where she has been detained since Tuesday in order to prevent her from participating at the rally against the president.

Aftab Cheema, police chief of the eastern city of Lahore said: "The government has withdrawn Bhutto's detention order, and from now, she is free to move wherever she likes. Police will remain (outside) for her security, but there will be no restriction on her movement,” Reuters reports.

Bhutto rejected the new administration saying that it was run by an ally of Musharraf and that she will continue her plan to oust Musharraf from his office.

The interim administration is led by caretaker premier and Senate chairman Mohammedmian Soomro. During the ceremony, Musharraf hailed the previous government saying that it stabilized the country.

He said: "Today we are creating history because I think never has Pakistan seen such a smooth transition of government,” AFP quotes.

On Thursday, at midnight, the parliament dissolved after a five year term.

Musharraf added at the ceremony: “I take pride in the fact that, being a man in uniform, I introduced the essence of democracy.”

He had promised to hold the presidential election on January 9. The opposition parties promised to boycott the elections.

When Bhutto came out of her house, she called for a “people's revolution” in order to oust Musharraf. She also promised to go on with the march that was supposed to start on Tuesday, when she was detained.

At a news conference she referred to the party saying: "This caretaker government is an extension of the PML-Q and is not acceptable,"

Bhutto expressed her wish to unite with opposition political leaders, including exiled premier Nawaz Sharif, in order to form a front and replace the government.

She said: "I believe it is hard to build a coalition but I will take on the task. I talked to Nawaz Sharif and told him that I am discussing with all leaders the formation of an interim government,” AFP reports.

On Friday John Negroponte, number two to U.S. Secretary of State Condoleezza Rice, is due to arrive in Pakistan in order to express U.S. concerns. He is due to meet Musharraf.

U.S. Defence Secretary Robert Gates questioned the effectiveness of Pakistan as US ally in the fight against terrorism.

He said that Musharraf's "ability to continue to be a partner in the war on terror very much depends on how events unfold over the next few weeks in Pakistan.”