ISLAMABAD: Pakistan plunged towards a debilitating power struggle on Wednesday as the Supreme Court destabilised a provincial government controlled by President Asif Ali Zardari's main rival, former premier Nawaz Sharif.

The court's decision to nullify the election last year of Nawaz's younger brother Shahbaz Sharif as Punjab's chief minister raised fears of a return to the political instability of the 1990s, a decade that ended in a military takeover.

It wiped five per cent off share values on the Karachi stock exchange.

'Shahbaz Sharif's membership (of the provincial assembly) has been cancelled,' Akram Sheikh, a lawyer supporting the Sharif brothers, told reporters outside the Supreme Court.

The court also effectively maintained a bar on two-time prime minister Nawaz Sharif contesting polls.

Neither brother was in court.

Pakistan can ill afford the political uncertainty. The economy is only afloat thanks to an International Monetary Fund loan, militants threaten the security of the nuclear-armed state, the war on terrorism in unpopular, and anti-American sentiment is rife.

A showdown between Zardari and two-time prime minister Sharif has been brewing since they forced former army chief Pervez Musharraf to quit as president last August.

The court's decisions take place a week ahead of elections for the upper house and the Senate.

'The political impact of this decision will be extremely negative and if not handled properly this can undermine prospects of democracy in Pakistan,' Hasan Askari Rizvi, political analyst based in Lahore, said.

'This virtually amounts to excluding one of the major political parties from the political process.'

The Sharifs' supporters took to the streets in Lahore and other towns across Punjab, burning tyres and chanting anti-government slogans, raising the spectre of more agitation.

'Big protests are expected tomorrow. The people of Punjab are with them. It doesn't look good,' said a former cabinet minister, whose party belongs to Zardari's coalition.

UNFINISHED BUSINESS

Sharif's supporters see the Supreme Court as a tool of Zardari, and Sharif has refused to recognise the legitimacy of a chief justice he regards as a Musharraf appointee.

'This judgement has been given by a kangaroo court on the direction of Mr Asif Ali Zardari,' said Sharif party spokesman Siddiqul Farooq.

Zardari, the husband of slaim former prime minister Benazir Bhutto, is unpopular among Pakistanis because of old corruption allegations, but he is seen as pro-west and dovish towards India.

Western governments are wary of Sharif, who represents the religious conservative mainstream.

There is a lot of unfinished business to be resolved in the aftermath of last year's transition to civilian rule after more than eight years under General Musharraf.

Nawaz Sharif was ousted by the coup that brought Musharraf to power in 1999, and his conviction for hijacking the plane that brought the general home is the reason why he is barred from standing for election.

After returning from exile in late 2007, Sharif revived his fortunes by backing a lawyers' movement campaigning for the reinstatement of a Supreme Court chief justice who Musharraf had suspended and dismissed earlier that year.

The lawyers are gearing up for a 'long march,' actually a cross-country convoy by hundreds of cars, from Lahore to Islamabad on March 12 to mark the second anniversary of Musharraf's suspension Iftikhar Chaudhry.

Analysts say that if Iftikhar Chaudhry were reinstated he could prevent Musharraf getting indemnity for his actions in securing his re-election and declaring emergency rule in 2007.

That in turn could cast doubt on the validity of the protection Musharraf gave Bhutto and Zardari to return from self-imposed exile without fear of prosecution for corruption and other alleged crimes.