(CNN) -- Pakistani President Gen. Pervez Musharraf has agreed to step down as the country's military chief during negotiations on a power-sharing deal with Pakistan's former prime minister and opposition leader Benazir Bhutto, she told CNN Wednesday.
Allies of Pakistan's ruler Gen. Pervez Musharraf say agreement has been reached on his military role.
"This is no longer an issue in the negotiations, because Gen. Musharraf recognizes that it is very difficult to move to a transition towards democracy when there's a chief of army staff ruling the country," Bhutto told CNN.
"I think he wants to make the right decision, so I expect he's going to take the uniform off."
Pakistani cabinet minister Sheikh Rashid confirmed that Musharraf has agreed to step down as army chief.
But it is up to Musharraf to announce his decision, Bhutto said, adding that the issue of his role as army chief is "no longer a hurdle in the negotiations that the opposition and I have been having with him."
"Earlier we had left it to the courts to decide this issue," she said, referring to Musharraf's army chief position. "But now we have bilaterally decided that this issue will be resolved."
Bhutto has previously said she is considering returning as Pakistan's prime minister under Musharraf's government if he steps down as head of Pakistan's military.
She said negotiations between her opposition party and Musharraf involve appointing a caretaker government, holding fair elections and returning to parliament powers that were removed after the 1999 coup in which Musharraf seized power.
A power-sharing deal between Bhutto and Musharraf would require Pakistan's Supreme Court to change the country's constitution to allow Musharraf to seek a third term.
Currently, the constitution calls for an elected official to step down and wait a year before seeking a third term.
The constitution's two-term limit for prime ministers would also have to be amended to allow Bhutto to serve a third term.
A deal with Bhutto could cost the opposition leader her credibility and boost opposition leader and former Prime Minister Nawaz Sharif's standing ahead of the elections.
In a speech Wednesday, Musharraf indicated he might block Sharif's return, according to a report from Pakistan's official news agency.
Musharraf said Sharif was told by an unidentified "friend of Pakistan" to "abide by the agreement of not returning to the country before the end of 10 years of his exile," the Associated Press of Pakistan reported.
"Therefore, I also urge him to abide by the agreement," Musharraf was quoted as saying.
Eight years ago, Musharraf ousted Sharif from power in a bloodless coup. Sharif, who retains his Pakistani citizenship, has been in exile in Saudi Arabia since 2000 and has not been allowed to travel or directly take part in Pakistani politics.
Last week, Pakistan's top court lifted the exile on Sharif, clearing the way for the opposition party leader's return for elections scheduled for later this year.
Sharif has vowed to use street protests to stop Musharraf's push for re-election, and has emerged as a formidable opponent to the current leader.
Speaking shortly after the top court in Pakistan lifted his exile, Sharif criticized Bhutto for considering a deal with Musharraf.
"I don't believe in power-sharing with Musharraf -- he is a dictator, we are democrats," Sharif said Thursday, shortly after the Pakistani court's ruling. "How can a democrat share power with a dictator?"
Musharraf was elected president in a 2002 vote that was widely viewed as rigged. His five-year presidential term expires in November and he has been seeking to retain his position as president and army chief. E-mail to a friend
CNN's Senior International Correspondent Nic Robertson contributed to this report.