Pakistan this week wound up a special team that had been investigating alleged corruption by Benazir Bhutto, the country's first female premier, during her two terms in power between 1988 and 1996, officials said.

Government officials said the team in the National Accountability Bureau was closed this week in a move to facilitate indirect contacts that had been going on between Musharraf and Bhutto -- who is now in exile in Dubai and London -- for some time. Railways Minister Sheikh Rashid and Ports and Shipping Minister Babar Ghuri both said on private television channels late Thursday that a deal with Benazir's opposition Pakistan Peoples Party (PPP) was in the making.

"Serious negotiations are underway between the two sides but it is not necessary that these will succeed," Rashid told AFP on Friday. He declined to elaborate when asked what the two sides were demanding from each other.

Musharraf is currently facing multiple challenges to his eight-year hold on power.

The most serious is a crisis over his removal of the country's chief justice, which has sparked several protests backed by Benazir's party along with other opposition groups.

However Pakistan People's Party spokesman Farhatullah Babar denied any deal was being worked out with the military regime.

"There is no question," Babar told AFP. "This is a disinformation campaign by the regime to create dissension within the opposition ranks and to confuse the public."

He also dismissed the significance of the government's move to effectively close the cell investigating the charges against Benazir -- the head of which has been transferred and given a new provincial government posting.

"The government still chases Benazir Bhutto and (her husband) Asif Zardari in courts both in the country and abroad," Babar said.

"Our basic demand is free and fair elections and level playing fields for all political parties and a caretaker set up to conduct the elections. That demand has not been accepted by the government."

Musharraf is due to seek re-election as president by national and provincial assemblies before holding general elections, the second during his tenure, late this year or early 2008.

He is under western pressure to ensure free and fair elections involving mainstream liberal parties, to counter radical groups who gained influential positions in the last polls in 2002 polls due to a political vacuum.

As well as Benazir, Musharraf has also exiled Nawaz Sharif, her rival, successor and the only other major rallying figure for Pakistani opposition.

Benazir Bhutto and Sharif recently held talks in London.