The shock developments deepened a crisis that began when the ruling coalition — which included both men when it stormed to a historic poll victory in 2018 — fell apart after a failed weekend bid to form a new government without Anwar.
Anwar was Mahathir's designated successor, but he would likely have been pushed out and blocked from becoming leader if the weekend´s bid had succeeded.
Their notoriously stormy relationship has shaped Malaysian politicians ever since Mahathir — during a first stint in office in the 1990s — sacked Anwar as his deputy, and he was jailed on dubious sodomy and corruption charges.
They reconciled ahead of the 2018 polls to oust a corruption-plagued coalition led by Najib Razak, but many were sceptical Mahathir would stick to a vow to hand power to Anwar.
Mahathir, at 94 the world's oldest leader, was appointed interim leader following his resignation Monday, and he appeared initially to have strong support to return as premier.
But backing fell away early Wednesday and rumours swirled Anwar had garnered enough support from MPs for the top job.
Expectations rose that Mahathir might finally cede power — only for the elderly leader to announce in a televised address to the nation that he wished to establish a unity government, and was willing to return as premier.
"Party politics must be put aside for now," said Mahathir. "If allowed, I will try to form an inclusive government, not siding with any political parties."
"If I still have the support I will return. If not I will accept whoever is chosen," he added.
Jockeying for support
Moments later at his own press conference at his party headquarters, Anwar said he had received backing from three parties in the "Pact of Hope" coalition — the grouping in power until Mahathir quit — to become premier.
Anwar said the coalition had invited Mahathir to a meeting on Tuesday evening, but after he failed to show they decided to put him forward as their candidate.
"Since the attempt to topple the government last week we have remained steadfast in defending the mandate of the Malaysian people," he said.
After reading the statement, he added: "We leave it to the palace to decide".
Officially the king appoints the prime minister, and he has been interviewing all the country's MPs since Monday to work out who they support.
A candidate must have the support of at least 112 MPs — but it was not clear whether Anwar or Mahathir would achieve that, heightening the chances of a snap election.
Reports say that Mahathir had already proposed a unity government to leaders across the political spectrum Tuesday, but they rejected the idea.
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