A British judge granted bail of US$317,400 for the release of WikiLeaks founder Julian Assange, wanted in Sweden for alleged sex crimes and the target of US fury over the release of secret diplomatic cables.

Prosecutors, representing Swedish authorities, quickly said they would appeal against the bail decision and Judge Howard Riddle said Assange must remain in custody until a new hearing is held within 48 hours.

Riddle had earlier ruled that, pending a hearing on January 11, Assange could be freed under strict conditions including electronic tagging and a curfew.

He would have had to report to police daily and post a US$317,400 bond, to be put up by wealthy backers.

The 39-year-old Australian, who has spent a week in London's Wandsworth prison, is fighting attempts to extradite him to Sweden for questioning over allegations of sexual misconduct made by two female WikiLeaks volunteers, accusations he denies.

Mark Stephens, a lawyer for Assange, said Swedish authorities would clearly not spare any expense to keep Assange in jail.

"This is really turning into a show trial and we will be in court again within the next 48 hours," he told reporters.

He called Assange "an innocent man sitting in Dickensian conditions, Victorian conditions in Wandsworth jail."

Assange and his lawyers have voiced fears that US prosecutors may be preparing to indict him for espionage over WikiLeaks' publication of the documents.

Riddle denied Assange bail a week ago on grounds he might abscond but said he had changed his mind because Assange had provided a British address and because discrepancies over his passport and right to stay in Britain had now been resolved.

Prosecution lawyer Gemma Lindfield, acting for the Swedish authorities, said nothing had changed.

"He remains a significant flight risk and no conditions that court can impose could prevent his flight," she told the court.