New York, July 2 (IANS) Former International Monetary Fund (IMF) chief Dominique Strauss-Kahn was released from house arrest Friday as the sexual assault case against him moved another step closer to dismissal.

The case's chances of dismissal grew after prosecutors told the Manhattan judge that they had serious problems with the case, The New York Times reported.

They acknowledged the significant credibility issues with the hotel housekeeper who accused Strauss-Kahn of trying to rape her in May, New York Times reported.

Strauss-Kahn, 62, was accused of sexually assaulting the housekeeper who went to clean his luxury suite at the Sofitel New York.

After his arrest Strauss-Kahn resigned his position as managing director of the International Monetary Fund.

During a brief hearing Friday at State Supreme Court in Manhattan, prosecutors did not oppose his release; the judge then freed Strauss-Kahn on his own recognizance.

The development represented a stunning reversal in the case.

The case could also alter the political fortunes of Cyrus R. Vance Jr., the Manhattan district attorney, who is just a year and a half into his tenure, and was facing his most highly publicised case to date.

From Strauss-Kahn's first court appearance May 16, Vance's office expressed extreme confidence in its case.

The accounts of details provided earlier by the victim varied greatly from what prosecutors revealed Friday, acknowledging publicly for the first time that the case was not as strong as initially suggested.

In a letter sent to Strauss-Kahn's lawyers and filed with Justice Michael J. Obus Friday, prosecutors outlined poking holes in Strauss-Kahn's accuser account and background.

The housekeeper admitted to prosecutors that she lied about what happened after the episode on the 28th floor of the hotel, NYT reported.

She had initially said that after being attacked, she had waited in a hallway until Strauss-Kahn left the room. She later admitted that after the episode, she cleaned a nearby room, then returned to Strauss-Kahn's suite to clean there.

Only after that did she report to her supervisor that she had been attacked.

Prosecutors disclosed that the woman had admitted lying in her application for asylum from Guinea. According to the letter, she "fabricated the statement with the assistance of a male who provided her with a cassette recording" that she memorised.

She also said that her claim that she had been the victim of a gang rape in Guinea was also a lie.

The woman's lawyer, Kenneth Thompson, gave a lengthy retort outside the courtroom in which he conceded problems with her credibility, but insisted that she was still the victim of an attack, saying that her version of events has never wavered.

He said some evidence, like bruising she had sustained, was consistent with a non-consensual encounter.

While prosecutors have not yet dismissed the case, Strauss-Kahn will now be able to move about the country more freely; although prosecutors will retain his passport, most of his restrictive bail conditions have been lifted.

After his hearing, Strauss-Kahn re-emerged, smiling at the assembled crowds.