A presidential spokesman said President Habibie decided to "release Xanana Gusmao one week after the results of vote counting" in in East Timor's independence referendum.

The ballot will take place on Monday, and UN officials expect the results to be released a week later.

Posters with Mr Gusmao's picture are seen at all pro-independence rallies

The spokesman confirmed that this meant Mr Gusmao would be released on 15 September.

Mr Gusmao will receive an amnesty on the rest of his 20-year jail term handed down for plotting against the state and illegal possession of arms.

The announcement comes after a day of violence in the East Timorese capital Dili, when at least three people were killed in clashes between pro-Jakarta demonstrators and pro-independence activists.

Independence hero

Fifty-two-year old Mr Gusmao, who was arrested in 1992, is widely tipped to become East Timor's president if the territory gains independence following the rerferendum.

He took over the leadership of the East Timorese rebels in 1979, after the movement had been decimated by the Indonesians. He eluded capture for 13 years.

Mr Gusmao is tipped as the future president of an independent East Timor

In February this year he was moved from jail into a comfortable government guest house in Jakarta.

Although he has remained under house arrest, Mr Gusmao has been an important player in ongoing diplomatic efforts to resolve the crisis in East Timor.

President Habibie's announcement had been widely expected, but Mr Gusmao's chief lawyer, Hendardi, said he should have been freed earlier, "and not as part of an amnesty or presidential pardon".