Bangladesh president dissolves parliament, frees former PM Zia

DHAKA, Aug 6 (Reuters) - Bangladesh's president dissolved parliament on Tuesday, clearing the way for an interim government and new elections a day after Prime Minister Sheikh Hasina resigned and fled following a violent crackdown on a student-led uprising.

President Mohammed Shahabuddin's office also announced that the leader of the opposition Bangladesh Nationalist Party, Begum Khaleda Zia, a former prime minister who had feuded with Hasina for decades, had been freed from house arrest.

Student protesters had threatened more demonstrations if parliament was not dissolved.

The movement that toppled Hasina rose out of demonstrations against public sector job quotas for families of veterans of Bangladesh's 1971 independence war, seen by critics as a means to reserve jobs for allies of the ruling party.

About 300 people were killed and thousands injured in violence that ripped through the country since July.

After demonstrators stormed and looted the prime minister's lavish residence on Monday, the streets of the capital Dhaka were again peaceful on Tuesday, with traffic lighter than usual and many schools and businesses that shut during the unrest still closed.

Garment factories, which supply apparel to some of the world's top brands and are a mainstay of the economy, will reopen on Wednesday after being shut due to the disruptions, the main garment manufacturers' association said.

The decision to dissolve parliament was taken following meetings with the heads of armed forces, leaders of political parties, student leaders and some civil society representatives, a presidential statement said.

Negotiations on the formation of the interim government continued through Tuesday, a student leader and a government official told Reuters.

President Shahabuddin had said earlier that an interim government would hold elections soon after it takes over. Nahid Islam, a key organiser of the campaign against Hasina, said in a video message: "Any government other than the one we recommended would not be accepted."

Hasina's flight ended her 15-year second stint in power in the country of 170 million people, which she had ruled for 20 of the last 30 years at the helm of a political movement inherited from her father, state founder Mujibur Rahman, after he was assassinated in 1975.

Since the early 1990s Hasina had feuded and alternated power with her rival Zia, who inherited her own political movement from her husband Ziaur Rahman, a ruler himself assassinated in 1981.

Protests against Hasina were fueled in part by poverty. After years of strong economic growth as the garment industry expanded, the $450 billion economy struggled with costly imports and inflation, and the government had sought a bailout from the International Monetary Fund.

Hasina was accused of becoming increasingly authoritarian, with many of her political foes jailed. Her resignation was greeted by jubilant crowds, who stormed unopposed into the opulent grounds of her residence and carried away furniture and TVs after she fled on Monday.

Hasina flew to India and is staying at a safe house outside Delhi. Indian media reported that Hasina may travel to Britain, where she has family including a niece who is a government minister.

Reuters could not confirm her plans. Britain's Home Office declined to comment.

The student leaders said they want Nobel Peace laureate Muhammad Yunus as the chief adviser to the interim government and a spokesperson for Yunus said he had agreed.

Yunus, 84, and his Grameen Bank won the 2006 Nobel Peace Prize for work to lift millions out of poverty by granting small loans of under $100 to the rural poor of Bangladesh. He was indicted by a court in June on charges of embezzlement that he denied.

He told Indian broadcaster Times Now that Monday marked the "second liberation day" for Bangladesh after its 1971 war of independence from Pakistan. But he said Bangladeshis were angry with neighbour India for allowing Hasina to land there after fleeing Dhaka.

"India is our best friend...people are angry at India because you are supporting the person who destroyed our lives," Yunus said.

Student leaders said they had received reports of attacks on minority groups including Hindu temples in the Muslim-majority country, and urged restraint.

Hundreds of Hindu houses, businesses and temples have been vandalised since Hasina's overthrow, a community association said on Tuesday. India said it was worried about the incidents.

Reuters could not verify the scale of reported incidents and police officers did not answer calls seeking comment.