President Zardari of Pakistan backed down last night in a tense stand-off with Nawaz Sharif, the opposition leader, after he broke out of house arrest and began a protest march towards the capital, calling it a “prelude to a revolution”.

Political sources told The Times that Mr Zardari had agreed to re-instate Iftikhar Muhammad Chaudhry, the chief justice who was sacked by Pervez Musharraf, the former President, in 2007 and who has been the focus of a lawyers’ protest movement ever since.

The President also agreed to lift direct rule of Punjab, Pakistan’s biggest province and Mr Sharif’s political stronghold, and to review a ban on Mr Sharif and his brother, Shahbaz, from elected office, the sources said. He agreed to the concessions in a late night meeting with Yousuf Raza Gilani, his Prime Minister, after talks with General Ashfaq Kayani, the army chief, earlier and recent consultations with US and British officials.

The police immediately began dismantling barriers blocking Mr Sharif’s route to Islamabad, and did not try to stop hundreds of lawyers who gathered outside Mr Chaudhry’s home in Islamabad to celebrate his re-instatement. “It is a great victory for the lawyers’ movement and for the nation,” Athar Minallah, a spokesman for Mr Chaudhry, said.

The climbdown is bound to weaken Mr Zardari, who is growing increasingly unpopular and isolated, even within his own party, while strengthening Mr Gilani, who is understood to have negotiated the deal with Mr Sharif. It is also a significant victory for Mr Sharif and the lawyers who defied a government ban to launch a “long march” from several cities to Islamabad on Thursday to demand Mr Chaudhry’s unconditional re-instatement.

Mr Zardari had tried to stop the march by detaining hundreds of lawyers and opposition activists, banning public protests, blocking roads with cargo containers, and putting the army on standby in the capital.

Mr Sharif, a former Prime Minister, was placed under house arrest for three days in his hometown of Lahore yesterday, along with several other leaders of the march, which was due to culminate with a sit-in in front of the national parliament today. He broke through police barricades, however, and was in a convoy of 200 vehicles last night heading towards Islamabad, where he planned to join thousands of supporters and lawyers.

“Our destiny is Islamabad,” he told a television channel from inside his bullet-proof vehicle as it crawled through Lahore, surrounded by several thousand cheering supporters. “The response from the people is amazing. It is a golden moment in Pakistan’s history. It is a prelude to a revolution.”

Imran Khan, the cricket captain turned politician, who has been in hiding for the past few days, also vowed to bring thousands of people to today’s rally. “We will defeat the Government with people’s power,” he said.

The police in Punjab appeared to have abandoned their posts after detaining several of Mr Sharif’s supporters and firing teargas at lawyers in central Lahore earlier in the day. That raised questions over whether Mr Zardari would be able to stop Mr Sharif with the police and paramilitary forces, or would be forced to call in the army.

The United States, Britain and other Western governments, as well as many Pakistanis, fear that that could lead to a return to military rule in the nuclear-armed nation, which has been governed by the army for more than half of its 61-year history. US and British officials are also concerned that it could distract the army from fighting al-Qaeda and Taleban militants sheltering in Pakistan’s northwestern tribal areas, near the Afghan border.

Suspected militants attacked a transport terminal in northwestern Pakistan used to supply Nato and US forces in Afghanistan yesterday, setting fire to dozens of containers and military vehicles, in the latest in a series of similar attacks. Pakistan’s army says that it has been forced to bring reenforcements to Islamabad from northwestern Pakistan after the Government placed it on standby to protect sensitive areas in the capital and to back up police and paramilitary forces. “It may affect our fight against terrorists, but we don’t have any choice,” Rehman Malik, the Interior Minister, had told reporters in Islamabad.

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