He was released in the town of Zintan under an amnesty law passed by a parliament based in eastern Libya, lawyer Khaled al-Zaidi said on Sunday, adding that Saif was headed to another Libyan city that he could not name for security reasons.
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Saif, 44, is the most prominent of the late leader's children, and was touted by some as a reformist successor before the uprising six years ago in which Muammar Qaddafi was toppled and killed.
It is unclear what, if any, role the younger Qaddafi could play in Libya, where a complex array of armed groups and competing governments are vying for control.
But Qaddafi loyalists outside Libya as well as some in the east of the country, where military commander Khalifa Haftar has been building power, have been pressing for Saif's release amid a push from former regime figures to reassert influence.
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Saif's lawyer Zaidi said Saif could play an important part in national reconciliation efforts because he was popular in Libya: "He will play a pivotal and detailed role in this stage."
Zaidi told Reuters in an interview in Cairo that Saif would make a statement at some point and would not be turning himself in to the International Criminal Court, which is seeking his arrest.
Earlier reports that Saif had been freed from Zintan turned out to be false and there have long been conflicting rumours about his status.
No physical evidence of his whereabouts has been offered. Saif was last seen by an independent international observer in June 2014.
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Zintan's Abubaker Sadiq brigade, which was responsible for guarding Saif, said it had chosen to release him following requests from the justice ministry of a government based in eastern Libya that is a rival to the UN-backed one in the capital, Tripoli.
"We decided to release Saif al-Islam Muammar Qaddafi, who is free, and we confirm that he left Zintan on the date of his release on the 14th of Ramadan (Friday)," the brigade said.
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A Tripoli court sentenced Saif to death in absentia in 2015 for war crimes, including killing protesters during the revolution.
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A statement posted by the attorney general's office in Tripoli on Sunday said he was still wanted under that conviction and that an investigation had been launched into his reported release.
Libya slid into turmoil after Muammar Qaddafi's overthrow, with rival governments and armed alliances competing for power.
A UN-backed government in Tripoli has struggled to impose its authority and has been rejected by factions in the east.
Zintan, which gained military importance through its role in the 2011 uprising and has been at odds with authorities in Tripoli, had refused to hand Saif over.
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He is also sought by the International Criminal Court, which says his trial in Libya did not meet international standards.
It was unclear what terms Saif's captors might have set for his release, and why they would have freed a prisoner seen as a major bargaining chip.
Zintan, about 145 km southwest of Tripoli, has its own divisions, but has been broadly aligned with the government and armed forces based in eastern Libya.
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However, a statement from Zintan's military and municipal councils strongly condemned the Abubaker Sadiq brigade's decision to release Saif.
It said the move had ‘nothing to do with legal procedures, but is collusion and betrayal of the blood of the martyrs and the military institution that they claim to belong to’.
The defence and security committee of the eastern parliament criticised the move as well, showing that opinion among officials in the east is also split.
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