Egypt's supreme court ruled on Thursday to dissolve the Islamist-led parliament, plunging a troubled transition to democracy into turmoil just two days before an election to replace ousted leader Hosni Mubarak.

Islamists who gained most from Mubarak's overthrow decried what they called a 'coup' by an army-led establishment still full of Mubarak-era officials. They said the street movement that spurred last year's uprising would not let it pass.

The parliamentary vote earlier this year had swept long repressed Islamists into a commanding position in the legislature, a feat the Muslim Brotherhood had aimed to repeat with their candidate in Saturday and Sunday's presidential vote.

Those parliamentary gains will now be put back up for grabs in a new election.

In a further setback for the Islamists, the Supreme Constitutional Court ruled that Mubarak's last prime minister, Ahmed Shafiq, could stay in the presidential race against the Brotherhood's Mohamed Morsy.

U.S. Secretary of State Hillary Clinton said the United States expected Egypt's military authorities to fully transfer power to a democratically elected civilian government.

"There can be no going back on the democratic transition called for by the Egyptian people," Clinton told reporters, declining specific comment about the court ruling.

The Muslim Brotherhood said the court rulings indicated Egypt was heading into 'very difficult days that might be more dangerous than the last days of Mubarak's rule'.

"All the democratic gains of the revolution could be wiped out and overturned with the handing of power to one of the symbols of the previous era," it said.

Morsy pledged to press ahead with his presidential bid regardless and warned against foul play of the type that was typical of elections in Mubarak's days.

"If there is any forgery, there will be a huge revolution against the criminals ... a huge revolution until we realize the complete goals of the January 25 revolution," he said referring to the uprising against Mubarak.

Outside the constitutional court, protesters chanted 'Down, down with military rule' and hurled stones at troops lined up in a security cordon. A few hundred also gathered in Tahrir Square.

Shafik, a former military man appointed premier in the last days of Mubarak's rule, hailed the rulings as 'historic'.

"The ruling regarding parliament includes the dissolution of the lower house of parliament in its entirety," the head of the constitutional court, Farouk Soltan, told Reuters.

A new vote will have to be called by the executive powers, said Soltan, who was appointed by Mubarak.

The court had earlier ruled to overturn a law passed by the Islamist-led parliament that would have blocked senior Mubarak-era officials from the presidential race, legislation designed to keep Shafik and others out.

'A COMPLETE COUP'

For 16 months since Mubarak was toppled after 30 years in office, a transition overseen by generals has been beset by political bickering, protests and often bloodshed.

But many Egyptians had at least taken some reassurance from the calm conduct of the parliamentary election and the prospect of a presidential poll even though the process of writing a new constitution to define the president's powers is in deadlock.

Now even those gains are being plunged into doubt, although the army said the presidential poll would go ahead on time.

A senior member of the Brotherhood's political party, which swept up the biggest bloc of seats in parliament, said Egypt was entering a 'dark tunnel' if parliament was dissolved.

"Keeping the military candidate and overturning the elected parliament after granting the military police the right to arrest is a complete coup," said a moderate Islamist, Abdel Moneim Abol Fotouh.

He was referring to a decree issued with little fanfare on Wednesday allowing military police to detain civilians, a move critics said was a barely disguised bid to reinstate the decades-old emergency law that ended on May 31.

"Whoever thinks that millions of youths will let it pass is deluding themselves," Abol Fotouh said of the rulings.

For activists, the measures add to their suspicions that the pillars of Mubarak's establishment such as the army and police are regrouping to challenge the fragile political gains.

Protesters outside the court demanded the judges block the presidential bid by Shafiq, a man they derisively call a member of the 'feloul', or a remnants of Mubarak's regime.

But at a hotel a few miles away on the outskirts of Cairo, Shafik addressed hundreds of supporters, who danced and chanted: "The army and the people are in one hand."

RALLYING SUPPORT

"The message of this historic verdict is that the era of political score settling has ended," Shafiq told them, pledging to end chaos and restore stability.

Shafiq's support comes mainly from disparate backers who include a business elite that prospered under Mubarak, Christians worried about Islamist rule, and others who would welcome a military man to restore order to turbulent streets.

Morsy, who has relied on the 84-year-old Brotherhood's grassroots network, can also count on ultra-orthodox Salafi Muslims in the second round. But he has struggled to win over the supporters of centrist candidates, who could prove vital.

For many Egyptians who picked centrist candidates in the first round, the weekend vote presents a wrenching choice. They worry as much about an Islamist imposing new strictures as they do about handing power back to an ex-military man.

The army pledged to formally hand power to a new president by July 1, although analysts and diplomats expect the generals to continue to wield hefty influence well after that.

The Supreme Constitutional Court, the only court that can interpret laws, was used for decades by opposition groups and activists to challenge Mubarak's authorities.

It ruled election laws illegal in 1987 and 1990 - forcing the dissolution of parliament, overhauls of the electoral system and early votes. It also issued a ruling in 2000 to force Mubarak's government to accept judicial monitoring of votes.

But like other courts in Egypt, the president appoints its head, an issue that has been at the heart of calls for judicial reform. Soltan, the current head, was picked by Mubarak.