The suspect had been arrested Thursday at a residential address in Camden, north London, and taken to a nearby police station for questioning.

Farooq, 50, was a founding member of the Muttahida Qaumi Movement (MQM), a major force in Pakistan's biggest city Karachi.

He was on his way back from work on September 16 when he was ambushed. He was found with head injuries and stab wounds outside his London home and pronounced dead at the scene.

Detectives recovered a kitchen knife and a brick used in the attack.

More than 200,000 mourners packed the streets of Karachi for his burial on November 6.

The 34-year-old suspect was “bailed to return to a north London police station in January 2011”, Scotland Yard police headquarters said in a statement.

Detectives from Scotland Yard's counter-terrorism command have taken charge of the murder inquiry due to fears that the killing may be politically motivated.

They are hunting two other men of “Asian appearance” in connection with the killing.

Farooq claimed asylum in Britain in 1999. He was wanted in Pakistan over scores of charges including torture and murder related to the MQM's activities but always claimed the accusations were politically motivated.

He had twice been elected an MP in Pakistan but went into hiding in 1992 when the government ordered a military crackdown against party activists in Karachi.

MQM, a party representing Urdu-speaking people, is a partner in the ruling coalition led by the Pakistan People's Party in the southern province of Sindh, of which Karachi is the capital. – AFP