In a televised address late last night, the 93-year-old defied expectations that he would bring the curtain down on his reign, pitching the country into a second week of political crisis.
The speech provoked anger and disbelief among crowds who had gathered in bars and cafes to watch, and raised concerns that Zimbabwe could be at risk of a violent reaction to the political tensions.
His once-loyal ZANU-PF party -- who has already sacked him and told him to resign as head of state -- warned it would seek to impeach him if he fails to quit by midday today.
But their joy quickly turned to despair as Mugabe seemed to brush aside the turmoil -- blithely declaring he would chair a top-level meeting of the party that had just disavowed him.
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"The (ruling ZANU-PF) party congress is due in a few weeks and I will preside over its processes," he said.
Chris Mutsvangwa, head of the influential war veterans' association, called for protests and demanded that Mugabe be impeached.
The crisis erupted on November 13 over a factional squabble to succeed the ailing president.
Mugabe's wife Grace, 52, secured prime position to succeed him, sidelining the vice president, Emmerson Mnangagwa, who was fired.
But Mnangagwa, 75, has close ties to the army and the powerful war veterans.
After he fled abroad, the army took over the country and placed Mugabe under house arrest.
They insisted this was not a military coup, but rather an operation to root out "criminals around (Mugabe) who are committing crimes". That was seen as a reference to supporters of the highly ambitious first lady.
In scenes redolent of Zimbabwe's independence in 1980, crowds thronged the cities, waving national flags and chanting for Mugabe to resign.
The pendulum swung further against the president yesterday, when ZANU-PF dismissed him as its leader and demanded he resign as head of state, naming Mnangagwa as the new party chief.
But impeaching Mugabe, who is the only leader most Zimbabweans have ever known, would require a two thirds- majority in both houses of Zimbabwe's parliament which is due to resume on Tuesday.
Mugabe seemed unfazed, though.
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