Anwar, 70, walked out of a rehabilitation hospital where he was recuperating from a shoulder surgery just past 11.29am on Wednesday.
Anwar was heir-apparent to the premiership until Mahathir sacked him in 1998 and he was subsequently jailed for sodomy and abuse of power.
The result is a political quake for Muslim-majority Malaysia, sweeping aside the government of Prime Minister Najib Razak, whose reputation was tarnished by a corruption scandal and the imposition of an unpopular sales tax.
Kuala Lumpur - Malaysia's 92-year-old new leader Mahathir Mohamad said he expects to stay as prime minister (PM) for up to two years and vowed not to cut any deals to keep his predecessor out of jail for alleged corruption.
Anwar, Mahathir said, "maybe [will] have a seat in the cabinet" after he is voted into office and have a similar role to other heads of individual opposition parties within the alliance.
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He was released after the country's constitutional king Muhammad V granted him a full pardon.
Anwar was imprisoned again in 2015, when Najib was prime minister, after another sodomy charge, which he described as a politically motivated attempt to end his career.
"It all depends on the investigations being made and whether there is a case against him or not".
Anwar, who needs to contest a byelection to become a member of Parliament, said he doesn't want any Cabinet posts yet as he plans to spend time with his family and travel overseas for speaking engagements.
Analysts say tensions in the new government are possible due to the dominance of the two leaders Mahathir is the chairman of the alliance and Anwar is its de facto leader. He was Mahathir's deputy in the 1990s but fell out with his mentor during the Asian financial crisis.
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He refused to go quietly, leading tens of thousands of demonstrators in street rallies in Kuala Lumpur demanding reforms before being arrested. "There are many faults committed by the previous government, but we can not do everything in one day, so you have to be patient". He reiterated his full support for Mahathir's leadership and said their political feud has always been buried.
The previous government was one of the world's longest-serving, and Anwar's release adds to the dizzying sense of change sweeping the country and is likely to fuel public expectations of a new and more open era. It regrouped as the Alliance of Hope, but it was Mahathir's political comeback and his embrace by Anwar's party that helped seal the opposition's victory.
But in one of Malaysia's many political twists, Mahathir came out of retirement, determined to oust Najib over accusations that he had presided over the looting of billions of dollars from a state investment fund, a scandal that has tarnished Malaysia worldwide.
Najib Razak has denied any wrongdoing and was cleared by Malaysia's attorney general at the time, while the fund has consistently denied any misconduct.
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