Egypt braced for further political turmoil after its top court paved the way for the ruling military to assume parliament's powers by annulling the Islamist-led house while allowing Hosni Mubarak's last premier to stand in this weekend's presidential election.

Egyptian protesters demonstrate in Cairo's Tahrir Square

 The rulings, two days ahead of the fiercely contested election between the Muslim Brotherhood's Mohammed Mursi and the ousted Mubarak's last premier Ahmed Shafiq, could throw the country into further political turmoil.

The military council, which took power when Mubarak was ousted, has vowed to cede power to civilian rule after a president is elected.

The uncertain transition has been thrown into further disarray by Thursday's ruling which annulled parliament. The new president's powers were to have been defined by a constituent assembly appointed by parliament this week.

US Secretary of State Hillary Clinton called for a full transfer of power to elected civilians.

"There can be no going back on the democratic transition called for by the Egyptian people," she told a news conference in Washington.

A military source said the court's ruling technically meant that the military would assume legislative powers.

"We don't want it (the power) but according to the court decision and that law, it reverts back to us," the source said.

The head of the constitutional court, Faruq Sultan, told AFP that the decision "voids" parliament and must be respected by the authorities.

"It voids parliament, not in the meaning of dissolves," he said. "But the constitutional court's ruling is binding on all state authorities and all people," he said.

The court based its decision on what it said were illegal articles in the law governing parliamentary elections that reserved a third of seats for directly voted independents, or party members, and the rest for party lists.

Egypt's military decided on a complex electoral system in which voters cast ballots for party lists which made up two thirds of parliament and also for individual candidates for the remaining seats in the lower house.

The individual candidates were meant to be "independents," but members of political parties were subsequently allowed to run, giving the powerful Muslim Brotherhood's Freedom and Justice Party (FJP) an advantage.

The court also ruled that a law drafted by parliament to bar senior former regime officials such as Shafiq from standing in elections was unconstitutional.

The law applies to those who served in the 10 years prior to Mubarak's ouster on February 11, 2011 after an 18-day popular uprising.

Egyptian activists and political figures accused the military of staging a "counter-revolution".

"This series of measures shows that the Supreme Council of the Armed Forces (SCAF), the head of the counter-revolution, is adamant to bring back the old regime and the presidential elections are merely a show," six prominent parties and movements said in a statement.

The groups including the Current Party, the National Front for the Justice and Democracy, and the Coalition of Revolution Youth have called on Mursi to withdraw from the presidential runoff "which is just a show that legitimises the presence of SCAF at the head of authority in Egypt."

The groups also called on MPs to "rejoin the revolutionaries against SCAF domination of authority."

Mohammed al-Beltagi, a senior member of the FJP which dominates parliament, earlier called the court's decision on parliament part of a "military coup."

A series of measures, including giving the military powers of arrest, and then the court ruling were "a complete coup through which the military council erases the most honourable period in this nation's history," he said in a statement.

"This is in many ways a soft military coup. Now we have the parliamentary power going back to the Supreme Council of the Armed Forces, they will have their presidential candidate, they have the arrest laws. So we are going back to square one," said activist and academic Ibrahim al-Houdaiby.

"Instead of investigating the serious abuses committed by military officers and soldiers against protesters and others since January 2011, Egypt's authorities are giving them carte blanche to arrest and detain civilians," said Hassiba Hadj Sahraoui, Deputy Middle East and North Africa Programme Director at Amnesty International.

"We urge the authorities to rescind this decision, which has dangerous and pervasive ramifications for the rule of law in Egypt, but also in the short term with run-off presidential elections just days away."

FJP leaders went into a closed meeting after the court's decision to consider their next option, one of them told AFP.

Their candidate Mursi, who just scraped by Shafiq to win in the first round of polling, said he "respects" the ruling, even if "dissatisfied" with the decision on the political isolation law.

Outside the court dozens of people gathered amid heavy security to demand the application of the law.

"That's it, the revolution is over," one protester shouted, as others chanted against the military.

Shafiq was initially barred from standing in the election in accordance with the law passed by parliament in April.

But later that month the electoral commission accepted an appeal from Shafiq against his disqualification and the case was referred to the court.

Thursday's ruling came just two days before the landmark run-off to choose a successor to Mubarak.

In the first round of voting on May 23-24 -- which saw 13 candidates stand for the top job -- Mursi won 24.7 percent of the vote, slightly ahead of Shafiq's 23.6 percent.

The race has polarised the nation between those who fear a return to the old regime under Shafiq's leadership, and those wanting to keep religion out of politics and who accuse the Muslim Brotherhood of monopolising power since last year's revolt.

The next president, whose powers are yet to be defined by a new constitution, will inherit a struggling economy, deteriorating security and the challenge of uniting a nation divided by the uprising and its sometimes deadly aftermath.