By Maria Golovnina and Mehreen Zahra-Malik
ISLAMABAD, Aug 28 (Reuters) - Pakistani opposition politician Imran Khan appeared isolated in his struggle to bring down the prime minister on Thursday after a fellow protest leader announced he was ready to allow thousands of anti-government demonstrators to go home.
Pakistan has been gripped by mass rallies for two weeks, with thousands of protesters led by Khan, a cricketer-turned-politician, and cleric Tahir ul-Qadri camped outside parliament demanding the resignation of Prime Minister Nawaz Sharif.
Both leaders had warned that Thursday would be a decisive day in their efforts to bring down the government, but Qadri's camp unexpectedly issued a statement saying the government had met none of their demands and therefore protesters could leave.
The statement from Qadri's political party said he would make a speech to his supporters later in the day to deliver the message. It was not clear from the statement whether this means his camp had given up on its demands.
"Dr Qadri is expected to say to the crowd that they are free to go back," the party said in the statement. "Pakistanis have been burning in the flames of hunger, poverty and injustice but nobody cares for them."
The departure of Qadri's highly organized supporters from the protest area in the heart of Islamabad would seriously undermine Khan's efforts to breathe new life into his movement which many already expect to fizzle out soon.
The atmosphere in the capital remained tense as security forces sent reinforcements to surround the protest area, reflecting expectations of possible violence or clashes after two weeks of broken ultimatums and unpredictable twists.
As talks on how to resolve the impasse repeatedly failed, the crowd in the so-called Red Zone - home to the prime minister's home, parliament and embassies - has been grown thinner, leaving the area littered with rubbish and reeking of human waste.
Yet, in a show of defiance, some protesters have dug graves at the site to show they are prepared to die for their cause.
Khan, appeared defiant, saying he would not abandon his demands.
"I will not leave here. I will not accept this monarchy. I want real democracy," Khan told his supporters.
The demonstrations come at a difficult time for Pakistan, already plagued by an Islamist insurgency, sectarian tension and recurrent power shortages, with many people deeply unhappy with the government's performance since it came to power after winning an election in May last year.
Khan wants Sharif to step down because he believes the prime minister rigged the election. Sharif, who denies that, won the vote by a landslide, taking 190 of the 342 seats.
The ballot was the first democratic transfer of power in Pakistan's history and also propelled Khan from a fringe player to the head of the third-largest legislative bloc.
The country has swung between democracy and military rule for decades and the army's position is key to what happens next.
Few expect the army to try to grab power again. It has stayed out of the stand-off, providing security for Sharif and key government installations and calling on all sides to show restraint and solve the dispute through political means.
But even as protests lose steam, observers still expect Sharif to emerge significantly weakened from the crisis, with the all-powerful army likely to further sideline him on security and foreign policy issues.
Qadri had said Thursday was the last day for the government to meet his demands, mainly the registration of a murder case into the killings of 14 of his party activists during clashes with police at a June protest in the city of Lahore.
His camp's statement said the demand had not been met but a party spokesman declined to interpret the announcement ahead of Qadri's speech later in the day.
Qadri, who has a huge following and runs a network of Islamic schools and hospitals, said on Wednesday that Thursday would be "Revolution Day".
Both Qadri and Khan have made many dramatic statements about their intentions, most of which have not materialized. Several ultimatums have passed without action and Sharif has rejected their call for his resignation. (Editing by Robert Birsel)