Pro-Assange demonstrators gathered outside the Edwardian-era embassy building, and broke into cheers when the news filtered out onto the street.
"It must have been a tough decision for Ecuador because they had pressure," said Alejandra Cazas, an 18-year-old British-Bolivian citizen. "Now they have to watch out that he arrives to Ecuador safely."
But British Foreign Secretary William Hague said Britain will not allow Assange safe passage to Latin America. "There is no legal basis for us to do so," he said.
He said Assange was wanted in Sweden to answer allegations of "serious sexual offenses" and that the extradition had nothing to do with the work of WikiLeaks or with the United States.
Hague also insisted that Britain did not recognize the concept of diplomatic asylum, which he said was not a universal means of granting refuge.
Britain's response to Ecuador's offer prompted Peru, the acting chair of the Union of South American Nations, to call an extraordinary meeting for Sunday at Ecuador's request in Guayaquil, Ecuador, to discuss the Assange standoff.
Supporters who have visited Assange say he is living inside a tiny office at Ecuador's embassy, a small apartment of five or six rooms inside a larger building which also houses Colombia's embassy.
Assange has a bed, access to a phone and a connection to the Internet. "It's not quite the Hilton," said Gavin MacFadyen, a supporter who has met with Assange at the embassy.
The diplomatic repercussions continued Thursday with an unlikely confrontation between Sweden and Ecuador.
In a mark of its anger over the asylum ruling, the Swedish Foreign Ministry said it had summoned Ecuador's ambassador to complain about the decision. The country's foreign minister, Carl Bildt, said in a message posted on Twitter that "our firm legal and constitutional system guarantees the rights of each and every one. We firmly reject any accusations to the contrary."
Ecuador's President Rafael Correa did not seem to be in any mood for compromise either, posting a tweet that read: "No one is going to frighten us."
The issue already seems to have frayed diplomatic ties between the U.K. and Ecuador. Britain's previous ambassador to Ecuador, Linda Cross, departed earlier this year and had been due to be replaced this month by Patrick Mullee. But his arrival has been delayed.
Ties could fray further if Britain decides to enforce a little-known 1987 law that gives the U.K. the right to enter the embassy to arrest Assange — but most legal experts called such a development unlikely and potentially dangerous.
If Britain carried out such a move, as it suggested it might in a note delivered to Ecuador on Wednesday, "it would threaten their embassy premises around the world," as it could leave them open to reprisals, said Niblock, who practices at London law firm Kingsley Napley.
Many Britons have memories of a dramatic scene in 1980 when British special forces soldiers burst into the Iranian Embassy — at Iran's request — to free hostages captured by gunmen who had broken into the building six days earlier.
Hague insisted Britain had no plan to force entry into Ecuador's mission. "There is no threat here to storm an embassy," he told reporters.
Meanwhile, legal experts and diplomatic historians were abuzz with various unlikely scenarios for Assange's escape from Britain — perhaps hidden in a diplomatic car or smuggled in an oversized diplomatic bag.
Some have speculated Britain could revoke the diplomatic status of Ecuador's embassy — a move which would effectively sever friendly links between the two nations, but allow police to walk inside and arrest Assange.
Britain's foreign ministry said diplomats would continue discussions with Ecuador aimed at resolving the case, but Hague warned that he expected the diplomatic stalemate to continue.
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