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A former rival of Malaysia's new prime minister whose party helped him to a historic election win has been released from jail and could walk straight in to a government role.

Anwar Ibrahim was granted a royal pardon by Mahathir Mohamad on Wednesday to cap a series of dramatic developments in the southeast Asian country since the Barisan Nasional (BN) regime was toppled last week.

Mr Mohamad, 92, became the world's oldest elected leader by steering the Pakatan Harapan coalition to victory, marking the first time an opposition party had taken office since Malaysia was liberated from British rule in 1957.

He greeted Mr Ibrahim at the the official state palace in Kuala Lumpur alongside Sultan Muhammad V, with the 70-year-old having served three years of a five-year prison sentence for sodomy.

Supporters chanted "Reformasi" - meaning reform - as he made his way to the palace from the hospital where he had been receiving treatment for a shoulder injury under police guard.

Reformasi was the political movement he launched two decades ago, having been sacked from Mr Mohamad's previous government in 1998 due to a fallout over the Asian financial crisis.

He was later arrested and jailed on charges of corruption and sodomy, with his trial becoming a global spectacle.

At one point he was seen in court with a black eye, and prosecutors brought out what they said was a semen-stained mattress as they alleged Mr Ibrahim had enjoyed sex with two male aides.

Mr Ibrahim was jailed again in 2015, again for sodomy, and despite their previous differences his movement joined forces with Mr Mohamad's coalition to oust prime minister Najib Razak.

Addressing why he had reunited with a man who had sent him to prison for charges he claimed were "politically motivated", Mr Ibrahim said: "I have forgiven him. He has proven his mettle. He made his sacrifices and was maligned in the media. I tell you, it is like deja vu.

"He has struggled and worked indefatigably hard. He has now supported the reform agenda. He facilitated my release. Why should I harbor any malice toward him?"

His daughter Nurul Izzah said Mr Mohamad had a "rare second chance to put things right".

"Many have asked me how it is that our reform movement has now joined forces with the very same former dictator, Mahathir Mohamad, who sacked my father in 1998 and saw him arrested, brutalised and incarcerated," she wrote in the Guardian on Tuesday.

"My answer is simply that we must all firmly resolve to never let our nation sink to the depths it did again and prime minister Mohamad now has a rare second chance to put things right."

Mr Mohamad, who expects to be prime minister for "one or two more years", having previously stepped down in 2003, had vowed to see Mr Ibrahim freed from prison as part of a pre-election pact.

When he retires there is hope among supporters of Mr Ibrahim that he could take up the mantle, with his People's Justice Party having won the most parliamentary seats of any group within the coalition.

One, Ridzuan Ismail, said: "Seeing him walk free makes me emotional, but the fight is not over. Now we need to see him become prime minister."

Mr Anwar's wife, Wan Azizah Wan Ismail, is serving as the deputy prime minister and told reporters on Tuesday that her husband was "in no hurry" to become leader.