A five-member bench headed by Chief Justice Anwar Zaheer Jamali conducted the hearing in presence of several ministers, lawyers, senior PTI leaders and media, just a day before a rally proposed by Khan who had vowed to bring one million supporters to shut down Islamabad demanding Sharif's ouster.
The court heard several identical petitions by Khan and others to investigate charges of corruption against Sharif and his relatives after the Panama Papers released earlier this year showed his family owning offshore companies and assets.
"The commission will report to the Supreme Court," the chief justice said, adding that the commission will have the same authority as the top court.
The decision of the commission will be considered as the court's ruling and will be binding upon all parties.
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The court ordered the government and petitioners to present their Terms of Reference (ToR) for the probe panel.
The court will decide to harmonise the ToR if the parties could not come up with the agreed set of ToR.
However, the court did not ban the protest by PTI tomorrow in Islamabad. But it advised the government and opposition to show restraint.
Reacting to the court's ruling, Khan said the planned anti-government rally will now be marked as a day of thanksgiving in Islamabad.
Addressing a press conference outside Bani Gala, Khan thanked those who were part of his struggle against corruption. "Go home and rest," Khan told supporters. "You have to return to Islamabad tomorrow to celebrate thanksgiving at Parade Ground."
PTI had announced the rally in Islamabad to force Sharif to resign for a fair probe into the scandal.
According to the Panama Papers, three of Sharif's four children - Maryam, Hasan and Hussain were owners of offshore companies and "were owners or had the right to authorise transactions for several companies."
Meanwhile, the government has taken elaborate measures to
foil the protest and any effort to lockdown the capital as PTI chief Khan has threatened in several speeches.
All entry points to the capital are being monitored and scores of PTI workers have been arrested.
The PTI is in power in KP and hopes for a major influx of youth from the province to boost the strength of the protest.
In Punjab, which is controlled by 66-yar-old Sharif's ruling PML-N, hundreds of PTI workers have been arrested.
Official sources said close to 2,000 people were arrested to maintain law and order. But