UPDATE 1-Pakistan's Musharraf to resign as president-FT

(Adds details, background)

LONDON, Aug 14 (Reuters) - Pakistan's President Pervez Musharraf will resign rather than face impeachment by parliament, the Financial Times said on its website on Thursday, citing government officials and a member of his circle.

The paper quoted an unnamed senior Pakistani government member as saying that a deal had been brokered between Musharraf and members of the newly elected coalition government.

"The president will neither be impeached nor prosecuted on any charges. He will try and stay in Pakistan," the paper quoted the official as saying.

Musharraf had demanded he be allowed to retire to his farm in Islamabad and that there be no moves to prosecute him once out of office, the Financial Times said.

It quoted a senior government official as saying Pakistan's powerful army had insisted Musharraf's demands be met.

Musharraf, a close U.S. ally, has been under pressure to stand aside from Pakistan's ruling government coalition, led by the party of assassinated former Prime Minister Benazir Bhutto.

The former army chief, who seized power in a 1999 coup, has been isolated since his allies lost a February election.

His plummeting political fortunes have heightened concerns in the United States and among its allies about the stability of Pakistan, a nuclear-armed Muslim state that is also a hiding place for al Qaeda leaders. (Reporting by Jon Boyle; Editing by Richard Williams)