An Egyptian court Wednesday ordered ex-president Hosni Mubarak freed while he stands trial accused of corruption and killing protesters, as authorities pressed their roundup of supporters of his ousted Islamist successor.
Hours later, prime minister Hazem al-Beblawi, acting deputy military ruler during the state of emergency, ordered Mubarak to be placed under house arrest if released.
The decision to free Mubarak added a volatile new element to the political turmoil that has gripped Egypt since Mohamed Morsi was ousted as president in a July 3 coup, with 1,000 people killed in violence in the past week.
The unrest has prompted international criticism, and EU foreign ministers agreed in an emergency meeting Wednesday to suspend the sale of arms and security equipment to Egypt.
Last year, Mubarak was convicted of complicity in the deaths of some of the 850 people killed in the 2011 uprising that overthrew him, as well as on charges of corruption.
He was sentenced to life in prison, but an appeals court ordered a retrial on technicalities.
Should he be released from jail, he will be placed under house arrest and still face those charges. His next hearing is scheduled for Sunday.
Under Beblawi's order, Mubarak would be confined to his home, possibly a residence in Cairo or in the Rea Sea resort of Sharm el-Sheikh.
"In the framework of the emergency law, the deputy military ruler ordered Mubarak to be placed under house arrest," a cabinet statement said.
Meanwhile, authorities continued to round up members of Morsi's Muslim Brotherhood movement.
Overnight, they detained Islamist firebrand Safwat Hegazy and Mourad Ali, a spokesman for the group's Freedom and Justice Party.
Since the army ousted Morsi after massive demonstrations against him, authorities have issued hundreds of detention orders and arrest warrants for Brotherhood members.
A Brotherhood-led coalition however on Wednesday defiantly called for mass rallies on Friday, in a test of its remaining strength as more members are arrested.
Dozens of the group's leaders have been rounded up, including its supreme guide Mohamed Badie, who was detained on Tuesday.
It was the first time a Brotherhood supreme guide has been arrested since 1981.
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The Brotherhood swiftly named deputy Mahmoud Ezzat, described by experts as a "hawk" and conservative, to serve as interim guide.
Badie and two other senior Brotherhood leaders are expected to appear Sunday before a court on allegations they incited the murder of protesters in front of their headquarters on June 30.
Egypt has experienced a week of unprecedented political bloodletting, which began on August 14 when security forces stormed two Cairo pro-Morsi protest camps.
The crackdown and resulting violence across the country killed nearly 600 people in a single day, the bloodiest in Egypt's recent history.
Islamists have torched and attacked dozens of Christian churches, schools, businesses and homes -- mostly in the rural south -- accusing Egypt's sizeable Coptic minority of backing Morsi's ouster.
The deadly dispersals of the protest camps were followed by days of violence that have seen the country's toll rise to nearly 1,000 dead, including 37 Islamist prisoners who died in custody on Sunday night.
That excludes the toll in the Sinai peninsula, where militants have launched near daily attacks against police and army facilities.
On Monday, 25 policemen were killed in a single incident, when gunmen dragged them from two buses and shot them dead execution style near the border with the Gaza Strip.
The incident prompted national condemnation and mourning and brought the week's toll in Sinai alone to 45, according to an AFP count.
The international community has been shocked by the violence.
The European Union decided Wednesday to restrict exports of security equipment and arms to Egypt in response to the mounting violence but opted to maintain economic assistance.
After a meeting in Brussels, EU foreign minister issued a statement that dubbed recent operations by Egyptian security forces as "disproportionate", while also condemning "acts of terrorism" in the Sinai and attacks on churches blamed on the Muslim Brotherhood.
But expressing concern over the economic situation, the ministers said "assistance in the socio-economic sector and to civil society will continue."
British Foreign Secretary William Hague said, "We must keep faith with the majority of the people of Egypt who want a stable, democratic and prosperous country for themselves and that means we mustn't do anything that hurts them or that cuts off support to them."
For its part, the White House has denied reports it was halting its $1.3 billion annual defence aid package to Egypt.
Oil-rich Saudi Arabia, which backs the army-installed interim government, has said it would step in with other Arab nations to fill any funding gap if Washington halts aid.