A decision to cancel the warrant would be a step towards enabling the 43-year-old Australian to walk out of the Ecuadoran embassy in London, where he has been holed up for the past two years in a bid to avoid extradition to Sweden.
Prosecutors demanded that the warrant should be upheld, Swedish news agency TT reported.
But Assange's lawyer Thomas Olsson said it should be repealed with "immediate effect," TT said, adding that the proceedings continued behind closed doors.
Assange sought refuge in Ecuador's embassy in Britain in June 2012 after having exhausted all legal options at British courts to avoid being extradited to Sweden.
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He has said he fears that being sent to Sweden would be a pretext for transferring him to the United States, where WikiLeaks sparked an uproar with its publication of thousands of secret documents.
WikiLeaks repeatedly drove the global news agenda with startling revelations of the behind-the-scenes activities of governments around the world.
Assange's legal team has argued that Swedish prosecutors have dragged out the case for an unreasonably long period by not interviewing him at the embassy.
"We are confident about the hearing," Assange's lawyer Olsson said yesterday. "We think we have very strong arguments for the court to overrule the original decision."
Camilla Murray, chief administrator at the court, said a decision in favour of Assange would mean that a European arrest warrant against him will be immediately cancelled.
Assange has acknowledged that even if the Swedish prosecutors decide to drop the case, it is only one part of the legal battle that keeps him marooned at the embassy.
"I still have the larger problem, which is that of the United States and its pending prosecution, and perhaps extradition warrant," he told reporters in a conference call in June.
Olsson, his lawyer, was also cautious about stating what will happen if the Stockholm district court drops the arrest warrant today.