Appeal will be heard in the high court this week against decision to free WikiLeaks founder on bail, on grounds that he may flee

Sweden has decided to fight a British judge's decision to grant bail to WikiLeaks founder Julian Assange, who has spent more than a week in prison over sexual assault allegations involving two Swedish women.

A dramatic day in and around City of Westminster magistrates court saw Assange win bail, but then be forced to return to what his lawyer Mark Stephens described as "Dickensian conditions" at Wandsworth prison while the international legal battle played out.

Sweden has decided to contest the granting of bail to Assange, who is being held pending an extradition hearing, on the grounds that no conditions imposed by a judge could guarantee that he would not flee, a legal source told the Guardian.

The appeal will be heard by the high court this week. If he wins, Assange will still have to raise £200,000 in security to meet his bail conditions before being freed. Howard Riddle, the same senior district judge who last week ordered Assange be held on remand, granted bail with strict conditions, including a curfew and the wearing of a tag.

Today's developments represent a small but significant victory for Assange, who is being forced to fight the Swedish sex crime allegations in the midst of a tsunami of controversy after the publication by WikiLeaks of thousands of classified US government cables.

The court drama came as a further tranche of cables was released detailing often futile efforts by the US and UK – involving substantial amounts of British taxpayers' money – to block the thriving drug route from west Africa to Europe. The cables reveal countries struggling to cope with the booming trade while government officials sabotage anti-smuggling measures, officials tip off traffickers and vast shipments from South America pass through under the noses of customs. In one cable the president of Ghana is even forced to ask UK officials for help in screening his own entourage, who he fears could be carrying drugs through airports.

In a packed courtroom yesterday, Assange's barrister, Geoffrey Robertson QC, dismissed claims his client was a flight risk, saying that as a result of the past fortnight's WikiLeaks stories, his face was known worldwide.

Robertson also gave a taste of what Assange's argument could be when the extradition case begins in earnest. He said there was no allegation that Assange had used violence or injured the two women making allegations against him, and said one allegation that he had sex with a woman while she slept might not be an offence under English law.

Robertson said that even if Assange was convicted in Sweden, sentencing practice there meant he might not be jailed. Assange had been interviewed by Swedish police over the allegations on 30 August and vehemently denied any wrongdoing, Robertson said. Assange sat behind a plastic screen during the hearing, dressed in a dark jacket and open-neck white shirt. Asked by the judge if he understood that breach of his bail would lead to his arrest, he replied: "I understand that, your honour."

The bail conditions are that security of £200,000 is deposited with the court before Assange is freed, as well as two sureties of £20,000 each from two named people. Assange's passport must remain with the police and he must not apply for any international travel documents. He must stay at a country mansion owned by a friend, Vaughan Smith, and observe curfews from 10pm to 2am, and then from 10am to 2pm. During those periods the judge said he would be electronically monitored via a tag. Assange will also have to report to a nearby police station every evening.

Smith was one of two people to pledge £20,000 in surety, money that could be lost if Assange were to breach his bail conditions or attempt to abscond. His estate, Ellingham Hall, on the Norfolk-Suffolk borders, is set in 600 acres.

Restaurant designer Sarah Saunders also pledged £20,000 in surety. Asked why, she told the court: "Because I believe he would not let me down – he is a good friend … He will always do what he says he will do."

The court heard that internationally renowned figures including a Nobel prize-winning scientist, Sir John Sulston, and the film-maker Michael Moore were also backing Assange.

But a starkly different portrait of Assange was painted in court by Gemma Lindfield, representing the Swedish authorities, who said that "complaints have been made by two women of a serious sexual nature".

Opposing bail, she said: "The court has already found Mr Assange is a flight risk and nothing has changed since last week."

The judge disagreed, however, and said that since last week police had "verified" the address Assange would stay at if granted bail. He also said that last week he had been under the impression the prosecution was claiming there was no record of Assange entering the UK. The UK Border Agency had now told him it was not uncommon for there to be no such record even if someone had arrived perfectly legally.

Outside court, Stephens said: "It is impossible to say how long it will take before Julian Assange is out. The problem is £200,000 cannot be put in by cheque as that takes seven days to clear. So I have to go around to find cash and have it delivered to court, and until the court has it an innocent man stays in jail."

He condemned Sweden's decision to appeal against the bail ruling: "They are continuing to persecute Mr Assange … An innocent man is in custody."

Assange's mother, Christine, who flew over from Australia, said: "I am very happy with the judge's decision and I thank you all so much for supporting Julian."

Earlier she released a statement from her son in which he said: "My convictions are unfaltering. I remain true to the ideals I have expressed. This circumstance shall not shake them.

"We now know that Visa, MasterCard, PayPal and others are instruments of US foreign policy … I am calling for the world to protect my work and my people from these illegal and immoral attacks."