The Southeast Asian nation's political landscape has been shaped for nearly two decades by a bitter feud between Anwar and Mahathir, whose decision to sack Anwar as his deputy sparked an opposition movement, Reformasi, or Reform, in 1998.

But in 2016, Mahathir abandoned the long-ruling Barisan Nasional (BN) coalition and joined Anwar's opposition alliance to fight against scandal-hit former premier Najib Razak.

"It is going to be a full pardon, which means not only pardoned, but he is released immediately and after that, he will be free to participate fully in politics," Mahathir told reporters a day after he was sworn to office following his alliance's shock win in Wednesday's election.

At 92, he is the world's oldest elected leader.

Mahathir said the king indicated he was willing to pardon Anwar immediately. A full pardon by the king would mean Anwar can return to active politics.

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Before the election, Mahathir had said he would step down and give the prime minister's post to Anwar when he is pardoned. He has said Anwar's wife Wan Azizah Wan Ismail will be the deputy prime minister in his cabinet.

Reporters and Anwar supporters were gathering outside a hospital in Kuala Lumpur where he is recovering from a shoulder surgery. His wife also arrived at the hospital and an alliance source said Mahathir was due to visit later in the day.

Anwar, 70, was due to be released on June 8 with the time taken off his sentence for good behavior. He began a five-year sentence for sodomy in 2015, a charge he and his supporters say was politically motivated.

Mahathir said he will announce a cabinet on Saturday that would include himself, Wan Azizah and 10 others, including the ministers for finance, foreign affairs, defense and home affairs.

"Whether Anwar will be part of the cabinet or not will be decided when the time comes," he said.

Mahathir said initial policies would focus on fulfilling promises made in alliance's manifesto, including the abolition of a goods and services tax (GST).

"In the case of foreign affairs, we want to maintain good relations with all countries regardless of their policies," he said. "We do not want to favor any country, we want to ensure that the market for Malaysia is as large as possible."

REUTERS