The two women may now be able to resume their political careers

Awami League leader Sheikh Hasina was no longer banned from returning from abroad, a government statement said.

It also said there were no restrictions o­n the movements of her arch rival Khaleda Zia, who has been held under virtual house arrest in Dhaka.

She has reportedly been under pressure to go into exile in Saudi Arabia.

'Under threat'

"All restrictions o­n the two former prime ministers are lifted," the government statement said.

The military-backed government says it wants an end to corruption

"The government is lifting the restrictions [on Sheikh Hasina] in view of the views expressed in the media and different quarters."

The statement made no reference to comments by the US State Department earlier o­n Wednesday that democracy in Bangladesh was under threat.

"If the caretaker government does not take right decisions, there is a real threat to Bangladesh democracy and nobody wants to see that," spokesman Sean McCormack said.

The government's statement went o­n to say that - contrary to media reports - there had never been any pressure o­n Bangladesh Nationalist Party (BNP) leader Khaleda Zia to leave the country, and there were no restrictions o­n her freedom of movement.

It is not clear whether Wednesday's announcement means that the two women will be free to resume their political careers and take part in elections which the government says will be held as soon as corruption in the country has been eradicated.

Khaleda Zia's family said last week that they had been told to prepare for imminent exile in Saudi Arabia, but the Saudi Arabian government reportedly declined to allow her into the kingdom - apparently because it was reluctant to take in an unwilling guest.

Attempts by the government to find another country for her to be exiled seem to have failed.

Khaleda Zia's son, Tareque Rahman, is o­ne of around 160 politicians, businessmen and civil servants who have been arrested by the military-backed caretaker government o­n corruption charges.

The drive against corruption seems to have been welcomed by many ordinary Bangladeshis tired of seeing politicians and their relatives siphoning off the country's wealth.

'Clout'

The BBC's John Sudworth in Dhaka says that after days of political manoeuvring with the intention of sending the country's two most powerful political leaders into exile, the emergency government has seemingly backed down.

Sheikh Hasina, who was prevented from flying back to Dhaka o­n Sunday, has now been told that she can return.

She faces murder charges after Awami League members allegedly killed members of a rival political party during protests in Dhaka last year against the caretaker government prior to the imposition of a state of emergency.

Members of the emergency government had said that reform of the political system would be impossible with the two former prime ministers still o­n the scene.

Our correspondent says the two women seem to have won this particular battle with the government - which is perhaps a sign of just how much political clout they still wield.