Pakistan's government has been scrambling to keep Sheikh in prison since the supreme court last week upheld his acquittal in the 2002 murder of Wall Street Journal reporter Daniel Pearl. "It is a step toward freedom", the prisoner's father, Saeed Sheikh, told Reuters Television.
Voicing outrage over the acquittal of Sheikh and his aides, the White House asked Pakistan to expeditiously review its legal options, including allowing the USA to prosecute them to secure justice for Pearl's family.
The apex court on January 28 with a 2-1 majority decision dismissed the appeals of the Sindh government and Daniel Pearl's parents and ordered to release the accused - Ahmed Omer Shaikh, Fahad Nasim Ahmed, Syed Salman Saqib, and Shaikh Muhammad Adil.
The Pearl family lawyer, Faisal Sheikh, earlier said a review has a slim chance of success because the same Supreme Court judges who ordered Sheikh's acquittal sit on the review panel.
The U.S. government has said that it would seek Sheikh's extradition if his acquittal is upheld.
On assignment for the Wall Street Journal in the months after al Qaeda 9/11 attacks on the United States, Pearl was kidnapped in Karachi and later beheaded. The American was eventually freed.
When the law officer pleaded before the court that the ground realities warranted suspension of the December 24 Sindh High Court order, arguing that the accused should not be allowed to live with family as they could use mobile phones, Justice Shah reminded him that Sheikh reportedly used cell phones with impunity even during the period of his confinement.
Pearl's murder took place three years after Sheikh, along with Jaish-e-Mohammad chief Masood Azhar and Mushtaq Ahmed Zargar, was released by India in 1999 and given safe passage to Afghanistan in exchange for the almost 150 passengers of hijacked Indian Airlines Flight 814.
The order sending Sheikh to a safe house would seem to be a concession to the federal government, as well as the government of southern Sindh province where Karachi is the capital.
"They have never argued or charged them with belonging to a terrorist organization", said the lawyer.
That ruling was condemned as a travesty by Mr Pearl's family and denounced as "an affront to terrorism victims everywhere", by the US State Department.
In the government-run safe house, Sheikh will be under a 24-hour guard, often by military personnel.
Locations of such safe houses are usually kept secret.
He was later sentenced to death by hanging after telling a Karachi court that Pearl had already been killed days before the gruesome video of the journalist's beheading had been released.
The Tuesday decision is expected to draw fire from the United States. "He should be allowed to spend the "Kashmir Day" with his family members", read the court's order.
The US has also stated that it is ready to bring Sheikh to the US and put him to trial in the US courts, hinting at its distrust over the legal proceedings of the case in Pakistan. "Keeping one detained means "no trial", he said.
The US has heavily criticised the decision, saying that it was prepared to prosecute Sheikh in Washington.
Justice KK Agha and Justice Zulfiqar Ali Sangi issued verdict on appeals, lodged by the suspects against their sentences, after 18 years and acquitted the other three accused in the case who had been handed over life terms earlier.