Speculation over Hong Kong chief executive’s future comes as man whose murder case prompted the extradition bill is released from prison

China reportedly has plans to replace Hong Kong’s embattled leader, Carrie Lam, with an “interim” chief executive once protests have settled down.

The news emerged as the murder suspect whose case prompted the original extradition bill that in turn sparked the protest movement in June was released from prison on Wednesday.

The extradition bill was also formally withdrawn, a key demand of protesters, by the Hong Kong government on Wednesday. The bill, which would have allowed suspects to be sent to mainland China for trial in courts controlled by the Communist party, prompted months of protests before Lam agreed last month to withdraw it.

Citing people briefed on the discussions on Lam, the Financial Times reported that Beijing plans to replace her next year. The chief executive has become a lightning rod for sweeping protests over fears Beijing is tightening its grip and limiting the freedoms enjoyed under the “one country, two systems” principle enshrined when Britain handed Hong Kong back to China in 1997.

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Speculation over Lam’s future came as a man whose murder case prompted the the extradition bill was released from prison.

Chan Tong-kai, who is alleged to have killed his pregnant girlfriend while on holiday in Taiwan, was freed from a Hong Kong jail on Wednesday morning after serving 18 months for money laundering. Chan, who cannot be tried in Hong Kong for a crime committed in Taiwan, was charged for stealing funds from his girlfriend.

Lam’s government had argued for changing its fugitives law to allow suspects to be sent to jurisdictions where Hong Kong does not have extradition agreements, like Taiwan, Macau, as well as mainland China, in order to plug the loopholes exposed in cases like Chan’s.

Facebook Twitter Pinterest Chan Tong-kai, a Hong Kong citizen who was accused of murdering his girlfriend in Taiwan last year, leaves from Pik Uk Prison Photograph: Tyrone Siu/Reuters

Speaking outside of the maximum security Pik Uk Correctional Institution, Chan bowed and said he had made the “worst mistake” of his life and said he was willing to hand himself over to Taiwan authorities now he was out of jail in Hong Kong.

“For my impulsive act and the things I did wrong, I am willing to surrender myself to Taiwan to face sentencing,” he said.

Chan has previously said he would be willing to surrender himself to Taiwan authorities. In response to allegations he had been coerced, Hong Kong officials said his decision was “purely out of his own free will.” In a statement on Sunday, the government said: “Allegations that Chan was manipulated to surrender or his decision was out of political manoeuvring are totally groundless.”

Hong Kong on Wednesday rejected a request from Taiwan to send law enforcement officers to escort Chan to Taiwan, where he faces murder charges, and said Taiwan’s offer was “disrespectful” to Hong Kong’s jurisdictional power.

Taiwan had previously refused to allow Chan to surrender himself, demanding instead the establishment of a mutual legal assistance framework with Hong Kong first. Taiwan president Tsai Ing-wen has called the Hong Kong government “irresponsible” for how it is dealing with Chan’s case.

The withdrawal of the extradition bill is unlikely to calm protests, as protesters promise to keep demonstrating until all of their demands are met. Other demands include Lam standing down as well as an independent inquiry into alleged police brutality during the protests.

On Wednesday, Chinese foreign ministry spokeswoman Hua Chunying rejected the Financial Times report, calling it “rumour” backed by ulterior motives.

Sources told the Financial Times that officials in China wanted a stabilised situation before a final decision can be made on any leadership changes, because they did not want to be seen to be giving in to violence.

If Chinese president Xi Jinping decides to go ahead, Lam’s successor would be appointed by March and cover the remainder of her term, which ends in 2022, the newspaper said.

According to the FT, Lam’s top successors include a former head of the Hong Kong Monetary Authority, Norman Chan, and Henry Tang, who has also served as the territory’s financial secretary and chief secretary for administration, the report said.

“Originally they were going to wait to take action until unrest settles down. Now there seems like there is no end. It’s now concluded that there’s no expected timeline for the unrest to stop. We’re just going to create more and more damage,” said Michael Tien, a pro-Beijing legislator.

Tien said he had not been part of any briefings about Lam’s stepping down but has been aware of discussions of the possibility since August. “The [Chinese Communist Party] will never, never not hold anyone accountable,” he said.

In September, in response to a Reuters report about a recording of Lam saying she would step down if she could, Lam said she had never asked the Chinese government to let her resign to end the Chinese-ruled city’s political crisis.

Although the extradition bill was finally withdrawn, the protests have continued, defying police rulings banning them.

China has denied accusation it is eroding the freedoms granted in 1997, and has blamed foreign nations such as the United States and Britain for inciting unrest.