Parliament passed the bill last month after the Supreme Court dismissed Yousuf Raza Gilani as premier and convicted him for refusing to reopen multi-million-dollar corruption cases against President Asif Ali Zardari.
But on Friday, a five-member bench of the Supreme Court headed by Chief Justice Iftikhar Muhammad Chaudhry declared the law "unconstitutional".

It was the latest episode in a two-and-a-half-year saga in which the government has resisted demands to investigate Zardari, arguing he enjoys immunity as head of state.

The showdown could force elections before February 2013 when the government would become the first in Pakistan's history to complete an elected, full five-year mandate.

The Supreme Court has now given the new prime minister, Raja Pervez Ashraf, until August 8 to indicate whether he will follow a court order to write to authorities in Switzerland, asking them to reopen the cases against Zardari.

Last month, it suggested that Ashraf could suffer the same fate as Gilani -- being dismissed for contempt -- if he refuses to do so.

Critics of the judiciary and members of Zardari's main ruling Pakistan People's Party have accused the court of waging a personal vendetta against the president.

It was not immediately clear how far the government would resist Friday's order. State television quoted the attorney general as saying that he was "stunned" by the court decision that "went beyond its jurisdiction".

"Parliament is supreme and has the authority of legislation. The judiciary should not interfere in legislative affairs," Irfan Qadir told the channel, PTV.
But the petitioners who challenged the law, welcomed the move.

"We are thankful to the Supreme Court of Pakistan which has protected our rights through this decision. This act was formulated in a bid to quash the fundamental rights of the common citizen," barrister Zafarullah Khan told AFP.

The allegations against Zardari date back to the 1990s, when he and his wife, late premier Benazir Bhutto, were suspected of using Swiss bank accounts to launder $12 million allegedly paid in bribes by companies seeking customs inspection contracts.

The Swiss shelved the cases in 2008 when Zardari became president and the government insists the president has full immunity as head of state.

But in 2009 the Supreme Court overturned a political amnesty that had frozen investigations into the president and other politicians, ordering that the cases be reopened.

Zardari had already signed the contempt law, which sought to exempt government figures, including the president, prime minister and cabinet ministers from contempt for acts performed as part of their job.