The Supreme Court heard several identical petitions by Pakistan Tehreek-e-Insaf (PTI) chief Imran Khan and others to investigate charges of corruption against Sharif and his relatives after the Panama Papers released earlier this year showed his family owning offshore companies and assets.
The larger five-member bench headed by Chief Justice Anwar Zaheer Jamali and comprising Justice Asif Saeed Khan Khosa, Justice Amir Hani Muslim, Justice Sheikh Azmat Saeed and Justice Ijazul Ahsan conducted the hearing in presence of several cabinet ministers, lawyers of petitioners, senior PTI leaders and media.
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The apex court said it was ready to appoint a probe commission headed by a judge and armed with powers of the Supreme Court.
The court also ordered the government and petitioners to present their Terms of Reference (ToR) for the probe panel.
It court will decide to harmonise the ToR if the parties could not come up with the agreed set of ToR.
Before its adjournment till Thursday, the court also expressed willingness to hold hearings on a daily basis.
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However, the court did not ban the protest by PTI on Wednesday in Islamabad. But it advised the government and opposition to show restraint.
Reacting to the court's ruling, PTI chief Khan said the planned anti-government rally will now be marked as a day of thanksgiving in Islamabad.
Addressing a press conference outside Bani Gala, Khan thanked those who were part of his struggle against corruption.
"Go home and rest," Khan told supporters, "You have to return to Islamabad tomorrow to celebrate thanksgiving at Parade Ground."
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"I am elated that the investigation into Nawaz Sharif's (alleged corruption) will begin day after tomorrow."
PTI had announced the rally in Islamabad to force Sharif to resign for a fair probe into the scandal. According to the Panama Papers, three of Sharif's four children - Maryam, Hasan and Hussain were owners of offshore companies and "were owners or had the right to authorise transactions for several companies."
Sharif and his family have dismissed the allegations of money laundering and denied any wrongdoing but the opposition is demanding an independent probe.
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Meanwhile, the government has taken elaborate measures to foil the protest and any effort to lockdown the capital as PTI chief Khan has threatened in several speeches.
All entry points to the capital are being monitored and scores of PTI workers have been arrested.
Last night a major rally led by chief minister of Khyber-Pakhtunkhwa was teargassed and forced to return.
The PTI is in power in KP and hopes for a major influx of youth from the province to boost the strength of the protest.
In Punjab, which is controlled by Sharif's ruling PML-N, hundreds of PTI workers have been arrested.
Official sources said close to 2,000 people were arrested to maintain law and order. But PTI claims that thousands of its workers were arrested.
The party has also urged the court to take suo moto action against arrests by the government.