"Taleban’s supreme leader Mullah Mohammad Omar agreed to retreat to the mountains and hand over the southern city of Qandahar to opposition commanders", the pro-Taleban AIP said.

The news about Mollah Omar’s decision came as Taleban leaders were trying to arrange a withdrawal from their political and spiritual base, days after the capital Kabol had fall to the Northern Alliance forces.

Local government spokesman in Qandahar acknowledged that the heavy U.S. bombing of the city was forcing Omar to retreat.

"Faced with a blizzard of U.S. strikes, they decided to abandon the city to avoid more civilian casualties", AIP said, adding that they were expected to leave within 24 hours for the mountains.

Mr Hamid Karzai, a Poshtoon warlord opposed to the Taleban operating in southern Afghanistan since a month ago said he had reports of "serious turmoil" in the city.

"We also know that there is some fighting going on. Some Taleban troops are leaving," Karzai said. He said elements opposed to the Taleban in southern Afghanistan have urged Taliban troops to surrender.

"If they lay down their arms, they will be safe", Karzai said.

Thrown out of the capital, Kabul, on Tuesday by U.S.-backed Northern Alliance forces, the Taleban had dug in at their stronghold Kandahar brimming with defiance. The one-eyed Omar had vowed he would never surrender.

For his part, Esma’il Khan, the Northern Alliance Commander who "liberated" the western city of Heart on Wednesday said if the Taleban do not leave Qandahar, he would continue his adavance towards the city.

Intelligence services had identified Atef, an Egyptian former policeman, as the military planner of the 11 September attacks and the 1998 bombings of U.S. embassies in Kenya and Tanzania, for which he was on the FBI's list of most wanted fugitives. His death would be a significant blow to Mr Ben Laden and his "Al-Qa’eda" organisation.

However, the whereabouts of both Mr. Ben Laden and Mollah Omar were still unknown, but U.S. officials said they were shutting down their freedom to move and he was believed to be still in Afghanistan.

A spokesman for the government in Islamabad told the French news agency AFP that the report was incorrect and reiterated Pakistan's determination to keep Taleban leaders and Ben Laden on the Afghan side of the border.