Xanana Gusmao, the president, said on Tuesday night that he was taking sole responsibility for the nation's armed forces and would also be in charge of co-ordinating the 2,500-strong Australian-led international peacekeeping force that East Timor asked for last week to restore order.
But Mari Alkatiri, the prime minister, added confusion to Timor's already complex political situation on Wednesday by insisting that he was still in charge.
"You are wrong, completely wrong, he [Gusmao] is not taking control," he told Australian Broadcasting Corporation radio.
"The defence and security is still part of the government, and I am the head of the government."
He blamed the confusion of a misinterpretation of Gusmao's statement from Portuguese into English.
"Now, together we are going to work together to stabilise the country," Alkatiri said.
Gusmao's assumption of emergency powers without declaring a formal state of emergency was seen as isolating Alkatiri, whose handling of the affair has been heavily criticised in East Timor and abroad.
East Timor's capital, Dili, was calm for the first time in more than a week on Wednesday after Gusmao's announcement.
Gusmao appealed for people to
hand over illegal weapons
However, in another development, Major Alfredo Reinado, East Timor's rebel leader, labelled the emergency declaration a "mistake" because it did not involve sacking the prime minister.
"This it's not a solution, he [Alkatiri] is a criminal and should not be allow to stay as prime minister," Reinado told AFP by mobile phone on Wednesday from his base in the countryside outside the capital Dili.
"That is the mistake that the president has made."
Alkatiri's sacking of Reinado and 600 other soldiers last month caused the latest round of violence.
He was not prepared to discuss whether the rebels were ready to surrender their weapons to troops from Australia, Malaysia, New Zealand and Portugal.
On the streets of Dili, those who had heard the news of Gusmao's emergency proclamation had no doubt who was in charge.
"This is good. Now we can go back to our homes," said Jose Aurajo, who has stayed for five nights along with hundreds of other people in a car park.
Peacekeepers say youth gangs
have been hard to control
"Gusmao will never let the nation down. Alkatiri must take responsibility for this and must resign."
Gusmao is seen by his admirers as man of the people, an independence hero who fought against Indonesia's colonial rule and who spent years in jail for his beliefs.
Alkatiri, who spent much of his life as an exile in Angola and Mozambique, is seen by some Timorese as far more aloof and lacking Gusmao's liberation pedigree.
In Australia, a military official said Canberra planned to keep troops in East Timor for at least six months but hoped to scale down its deployment as order returned.
Angus Houston told a parliamentary hearing: "My hope is that as things stabilise, we can adjust the force downwards at some time in the future. But I'm not focused on that at the moment."
Australia last led troops into East Timor in 1999 to restore law and order after violence by militia groups, supported by elements of the Indonesian military, following a vote to break free of Indonesian rule.