Julian Assange, the freedom of information campaigner who has been in jail for the past week, was still behind bars on Tuesday night after prosecutors said they would appeal a decision by a London magistrate to grant him bail.

The High Court is now due to hear an appeal on the decision from UK prosecutors acting on behalf of the Swedish government in the next 48 hours.

The 39-year-old founder of WikiLeaks, the whistle-blowing website, is wanted in Sweden over claims of rape and sexual assault against two women. Sweden issued a warrant for his arrest last week.

The latest twist came on Tuesday afternoon after Mr Assange, an Australian, was initially granted bail by Howard Riddle, chief magistrate at City of London magistrates’ court, on certain conditions.

Mr Assange, who is being held in Wandsworth prison, has embarrassed the US and other governments by leaking thousands of confidential diplomatic cables. The revelations have been condemned by countries worldwide, but have been praised by freedom of information campaigners.

At Tuesday afternoon’s hearing, Mr Riddle said he would grant bail – after refusing him bail last week – but that Mr Assange would have to be tagged, be resident at Ellingham Hall, a stately home in Bungay, Suffolk, and report to a nearby police station once a day.

The magistrate also ordered that Mr Assange’s passport be retained by police and that he put up bail totalling £240,000. The money has to be deposited before Mr Assange can be released from prison.

The court was crowded with celebrities and supporters, including the campaigner Bianca Jagger, socialite Jemima Khan, film director Ken Loach and John Pilger, the campaigning journalist.

There was also a substantial police presence from early morning, with a number of protesters and hundreds of journalists present outside the central London court.

An extradition hearing for Mr Assange has now been set for early February.

Geoffrey Robertson QC, acting for Mr Assange, told the court that the Swedish laws on rape were “very, very different” from the UK and that the category of the alleged offence would not amount to rape under British law.

Captain Vaughan Smith, a former Grenadier Guards officer who runs the Frontline Club, a journalists’ haunt in London, and owns Ellingham Hall, the 10-bedroom home and 600-acre estate in Suffolk, was one of two people standing surety for Mr Assange.

Mr Smith told the court he had known Mr Assange for five months and found him “honourable” and “highly courageous”.

Mr Robertson told the court Mr Smith would “keep him if not under house arrest, under mansion arrest”.

Mr Robertson also told the court that allegations Mr Assange had entered the UK illegally from Switzerland were incorrect and that a witness had verified his entry into the country.

“There is no question of him coming into the UK illegally,” Mr Robertson told the court.

But Gemma Lindfield, a lawyer for the Swedish authorities, reminded the court it had “already found Mr Assange is a flight risk’’.

The court was also told by Mr Robertson that Mr Assange, who stood in the dock dressed in a dark suit and white shirt, was in a “Victorian situation” in prison and had been unable to read newspapers barring one tabloid.

Even when the US magazine Time sent him a copy of the magazine with his face on the front, the prison only allowed him to see the envelope.

Mr Riddle, who refused bail last week, told the court that two things had changed since his decision last week – Mr Assange had his address verified by police and the issue of how Mr Assange had entered the UK had been verified.

In a statement sent to an Australian news site, Seven News, Mr Assange rallied supporters ahead of the hearing. “My convictions are unfaltering. I remain true to the ideals I have always expressed,” he said.

“We now know that Visa, Mastercard and Paypal are instruments of US foreign policy. It’s not something we knew before. I am calling on the world to protect my work and my people from these illegal and immoral acts.”

Pro-WikiLeaks “hacktivists” last week launched a series of online attacks against companies they accused of hindering the site’s release of diplomatic cables.

A loose association of internet activists known as Anonymous launched denial-of-service attacks on websites owned by MasterCard, Visa and PayPal, as part of “Operation Payback”. Anonymous has also claimed credit for bringing down European websites of Amazon.com over the weekend; Amazon denied any attacks, blaming a technical fault.

Two individuals have been arrested in Holland following the attacks, one of whom has already been released.

Anonymous’s attacks have waned in recent days as it pursues “Operation Leakspin”, an attempt to distribute WikiLeaks’ cables widely across the internet.

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