Bhutto, the first female leader of a post-colonial Muslim nation, is set to return home on October 18 after eight years of self-imposed exile.
Rashid Ahmad said the issue had been discussed at a session attended by Prime Minister Shaukat Aziz. "A decision has been reached to lift old charges against Bhutto," he said.
Bhutto, who leads the opposition party, the Pakistan Peoples Party (PPP), will return to the country shortly after presidential elections slated for October 6. She has already announced plans to seek premiership in the yet-to-be-scheduled parliamentary elections.
Bhutto, who has occupied the premiership twice - in 1988-1990, and again in 1993-1996 - was forced to flee Pakistan in 1999 in the face of corruption charges, and has been leading her party from London and Dubai ever since.
The Pakistani government of President Pervez Musharraf, who took power in a coup the same year Bhutto left, had earlier said it would not prevent her from returning, but that she must still face the original allegations against her.
Musharraf, who in early September deported Nawaz Sharif, another former prime minister attempting to return from exile, currently has mounting problems related to his support of Washington's global antiterrorism campaign.
Confronted by recent widespread rioting by hard-line Islamists, and facing dwindling support both at home and in the U.S. Congress, Musharraf has reportedly been in talks with Bhutto about a possible power sharing arrangement after the general election.
However, any deal would be dependent on his granting the charismatic Bhutto an amnesty and stepping down as army chief, both extremely unpalatable options for the headstrong leader.
Bhutto, 54, is the daughter of deposed Premier Zulfikar Ali Bhutto, the founder of the PPP. He served as the president of Pakistan between 1971 and 1973, and as prime minister between 1973 and 1977.
He was hanged in 1979 by the country's military ruler, General Muhammad Zia-ul-Haq, allegedly for sanctioning the assassination of a political opponent.