A senior official within former prime minister Sharif's political party in Pakistan, however, denied that any such agreement had been reached, the Financial Times reported.

Speaking to the FT, Benazir Bhutto said: "Nawaz Sharif and I agree. Nawaz says, 'You should be the prime minister for the first five-year term,' and after that five-year term he wants to run."

"So I hope that we can move forward. That's a verbal discussion between us, but that is what he has said to me."

She said that she had struck the deal with Sharif so that the pair could present a united front to put the army back under civilian control.

Benazir Bhutto and Sharif were both prime minister twice between 1988 and 1999, with Benazir Bhutto going into exile in 1998 over corruption cases pending against her and her husband. She faces arrest and possible imprisonment if she returns.

Sharif's government in 1999 was cut short when General Pervez Musharraf led a military coup in Pakistan -- Musharraf remains the country's president, and the head of the army.

Iqbal Zafar Jhagra, secretary-general of Sharif's Pakistan Muslim League (N), denied, however, that the deal described by Benazir Bhutto had been reached, with the FT quoting him as saying: "The people will decide in fair elections who forms the government."

Benazir Bhutto also acknowledged in the interview that her Pakistan People's Party had been discussing a potential deal with Musharraf that would allow him to stay on as president so long as he relinquished his role as head of the army.

"We've had discussions, but they have not moved forward ... We've left all options open."

Musharraf insisted last month, however, that neither Benazir Bhutto nor Sharif would be allowed to return to Pakistan ahead of the country's general election, due later this year or early next year.