"The decree will come into effect from midnight tonight ... everyone in the parliamentary complex will be given 48 hours to move out," said military spokesman Lieutenant-Colonel Filipo Tarakinikini.
He did not say what action would be taken if the rebels, who have ignored similar offers since they stormed Parliament in the name of indigenous rights, did not leave the complex.
As security increased last night, random searches were carried out by soldiers at roadblocks.
At one checkpoint near Korolevu, about halfway along the road from Nadi to Suva, a taxi carrying a Japanese tourist was stopped and searched.
All the man's luggage was removed and searched, as well as the car and its engine.
An armed soldier told the Herald that the searches were being done at random and were for "the protection of the public." He refused to say what soldiers were looking for.
The ultimatum and imposition of an exclusion zone around the parliamentary complex comes after a shootout between troops and rebels on Tuesday in which five people were wounded.
Three civilians and two armed rebels were wounded in the gunfight. Military officials said later that inexperienced troops had overreacted to a crowd of rebel supporters who emerged from the Parliament.
But Colonel Tarakinikini said the exclusion zone should not be seen as a precursor to the use of force to end the crisis.
"This is not a first step towards a military option. It is just a step to resolve a situation that has gone on too long."
A mutiny by troops loyal to the rebels fizzled out yesterday as three junior officers who took over the Sukanaivalu barracks on Fiji's second largest island, Vanua Levu, on Tuesday handed back seized weapons and returned to normal duties.
Colonel Tarakinikini said the soldiers had returned all the weapons taken but he admitted that sympathy for the rebels was running high in the area.
Hundreds of people have moved freely in and out of the parliamentary complex since it was occupied by the rebels, led by failed businessman George Speight.
Colonel Tarakinikini said the military would not stop food supplies into the camp but tighter rules would be enforced.
Speight's rebels allow Fiji's Red Cross to make regular visits to the compound and to bring in food and clothing for Mr Chaudhry and his colleagues.
The 15-minute gun battle on Tuesday happened hours after a new, indigenous, Prime Minister, Laisenia Qarase, was sworn in.
Speight has rejected Mr Qarase and his 19-member civilian Administration, chosen by the military.
India on Tuesday called on Fiji to restore its multi-ethnic 1997 constitution, which led to Mr Chaudhry's election, and for the release of the hostages.
Mr Qarase had earlier rejected restoration of the constitution.
More Fiji coup coverage
Main players in the Fiji coup
The hostages
Under seige: map of the Parliament complex
Fiji facts and figures
Images of the coup - a daily record
George Speight: "I’m certainly not mad."
Fiji’s new PM addresses the nation
