Pakistan and the International Monetary Fund reached a much-awaited preliminary agreement Wednesday for the release of $700 million from a $3 billion bailout fund approved by the international lender in July.

The standby credit fund is meant to save cash-strapped Pakistan from default.

The two sides reached the staff-level agreement during talks in Islamabad, a statement from the IMF said. Pakistan's government also confirmed the deal and hailed it.

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The release of the $700 million still must be approved by the IMF's management and executive board, though such approvals are generally a formality.

The development comes at a time when Pakistan is facing economic crisis with worsening inflation that is driving up food prices. It also comes ahead of parliamentary elections scheduled for February.

Currently, an interim government headed by Anwaar-ul-haq Kakar is running day-to-day affairs of the government.

Hours before the announcement of the agreement, Kakar met with IMF's mission chief, Nathan Porter, and its resident representative for Pakistan, Esther Perez Ruiz, at his office, according to a government statement.

It said the IMF officials apprised Kakar of the status of the staff negotiations conducted in Islamabad.