Egypt began voting on Saturday in a divisive presidential runoff pitting ousted strongman Hosni Mubarak's last premier against an Islamist, two days after the top court ordered parliament dissolved.

Some 50 million Egyptians are eligible to cast ballots in the two-day election, which sees Ahmed Shafiq vying for the top job against Muslim Brotherhood candidate Mohammed Mursi.

Long queues had already formed outside some voting stations before the polls opened at 8 am (6 am GMT), with police and army deployed outside, according to AFP reporters.

"I will vote for the one who will guarantee security and safety for our community," said Makram, a Coptic Christian voter, from a polling station in the Shoubra neighbourhood.

Over in Manial, an island in the Nile, a crowd that included veiled and unveiled women waited to cast their ballots.

"I'm voting for Mursi because I don't want Shafiq to win. I'm scared of Mursi but I'm more scared of Shafiq," said Nagwan Gamal, 26, a teaching assistant.

The voting comes against the backdrop of two controversial court rulings on Thursday, allowing Shafiq's candidacy to proceed despite his role in the old regime, and invalidating Egypt's elected parliament.

The difficult choice of candidates has garnered support for the boycott movement, which was largely ignored in the first round, with celebrities and high-profile activists calling on Egyptians to abstain or void their ballot.

Others believed boycotting would waste a historic opportunity. "Everyone should participate in the election. I don't believe in boycotting," said Diana Adel, 26, in Manial.

"I think it will be fair, and I do think it will be historic because we're choosing a president ourselves," she said.

The winner will be the first freely chosen president in Egypt's history and will succeed Mubarak, who was forced from office by a popular revolt last year and turned power over to the military.

Activists said the court rulings were the final phase of a military coup that takes the democratic transition back to square one.

"Back to where you were," read a huge red headline in the independent daily Al-Shorouk after the Supreme Constitutional Court said certain articles in the law governing parliamentary elections were invalid, annulling the Islamist-led house.

It also ruled unconstitutional the political isolation law, which sought to bar senior members of Mubarak's regime and top members of his now-dissolved party from running for public office for 10 years.

Activists opposed to Shafiq had hoped the court would uphold the law and bar him from the presidential race.

Shafiq had initially been barred from standing, but the electoral commission accepted his appeal last month, permitting his candidacy and referring the case to the court.

Following the ruling, activists accused the ruling Supreme Council of the Armed Forces (SCAF) of staging a 'counter-revolution' after a series of measures that consolidated its power ahead of the polls.

On Wednesday, the justice ministry decided to grant army personnel the right to arrest civilians after that power was lifted when a decades-old state of emergency expired on May 31.

SCAF, "the head of the counter-revolution, is adamant to bring back the old regime, and the presidential elections are merely a show," six parties and movements said in a joint statement.

US Secretary of State Hillary Clinton called for a full transfer of power to elected civilians.

"There can be no going back on the democratic transition called for by the Egyptian people," she told reporters in Washington.

But the State Department said separately it was "troubled" by the court ruling ordering parliament annulled and was studying its implications.

"We are continuing to monitor the situation in Egypt," spokeswoman Victoria Nuland told reporters.

"If in fact the conclusion is that there need to be new parliamentary elections our hope is that they can happen swiftly and that they reflect the will of the Egyptian people."

Parliament speaker Saad al-Katatni, a member of the Muslim Brotherhood, whose Freedom and Justice Party won 47 percent of seats in the house, said there were 'question marks over the timing of the ruling'.

A military source said the court ruling technically meant that the military would assume legislative powers.

"We don't want it (the power) but, according to the court decision and that law, it reverts back to us," the source said.

The uncertainty promoted ratings agency Fitch to downgrade Egypt's long-term foreign currency rating, with a negative outlook.

The court ruling means "the political and policy-making process has been complicated, delaying the likely implementation of the comprehensive macroeconomic and structural reforms needed to kick-start recovery and ease financing strains," said Richard Fox, head of Middle East and Africa sovereigns at Fitch.

The presidential race has polarised the nation, dividing those who fear a return to the old regime under Shafiq's leadership from others who want to keep religion out of politics.

Mursi only narrowly bested Shafiq in last month's first round vote, and with no reliable polling available, the two men go into the race with their fortunes unclear.

But whoever wins will face the prospect of uniting a sorely divided electorate in an office whose powers have yet to be defined, while dealing with the key challenges of both a flagging economy and deteriorating security.