Major-General Waheed Arshad, a military spokesman, said Kiani would take over as chief of army staff when Musharraf vacate the post.
Analysts say the pardon for Bhutto is part of a power-sharing deal she and the president have been negotiating and that naming Kiani as successor is meant to give weight to his pledge that he will leave as head of the army if he wins the presidential elections.
Pardon for Bhutto
The government said the pardon for politicians involved in graft cases between 1985 and 1999 was part of the president's "national reconciliation drive".
"Pakistan needs a military leader who can control both civil and possible military extremism"
Creative_person01, Islamabad, Pakistan
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Sheikh Rashid, the railways minister and a close confidant of Musharraf, said on Tuesday: "The government has agreed to grant an indemnity on cases against Benazir Bhutto."
Bhutto, who is set to return to Pakistan from exile on October 18, had demanded the charges be dropped.
Prime minister between 1988 and 1990 and again from 1993 to 1996, she has lived in London and Dubai since 1999 because of the charges pending against her.
She held a series of talks with Musharraf about her planned return but they stalled on a number of issues including her demand that politicians who served during her time in power should be given an amnesty.
want the president to quit the position before the election, are far from appeased.
They want the election to be carried out by a new assembly formed after a general election rather than the current legislature in which Musharraf's allies dominate.
Earlier on Tuesday, Pakistani opposition members resigned en masse as two of Musharraf's political rivals filed new petitions in the Supreme Court challenging the general's eligibility to stand for the presidency.
Opposition members of parliament backed by hundreds of flag-waving supporters marched to the parliament to resign.
Imran Khan, the former cricketer and one of the leaders of the anti-Musharraf Alliance for the Restoration of Democracy, said: "This is the first step to discredit the election process."
|Opposition MPs refuse to legitimise Musharraf's|
expected re-election and have resigned [AFP]
The MPs and about 600 supporters, most of whom carried flags of the Jamaat-e-Islami party, marched from a parliamentary apartment building in Islamabad to the national assembly.
They shouted slogans such as: "This is the end of your show - Go Musharraf, Go!" and "A friend of America is a traitor".
"After our resignation, Musharraf's success would have no value," Maulana Fazal-ur Rahman, leader of the opposition in parliament, said.
Musharraf is expected to win the poll but opponents hope that the planned resignations, numbering more than 80, will erode its legitimacy.
Source: Al Jazeera and agencies