The 39-year-old Australian had given a thumbs-up to the packed courtroom in London as the judge granted him conditional bail Tuesday, one week after being arrested at the request of Swedish authorities.
However, two hours later, lawyers for Swedish prosecutors announced that they would appeal the ruling, meaning the case will now go to Britain's high court and a new hearing must be heard within 48 hours.
Until that time, Assange, who denies the allegations, must stay in his cell at Wandsworth prison in London.
"This is really turning into a show trial. They clearly will not spare any expense to keep Mr. Assange in jail," Assange's lawyer Mark Stephens told reporters after learning of the Swedish decision.
District judge Howard Riddle had earlier granted bail worth £240,000 ($378,000), but ordered that Assange wear an electronic tag, abide by a curfew and live at the country estate of a supporter.
"I am satisfied that the conditions I am going to impose will make it certain as far as the risk of flight is concerned," Riddle told City of Westminster Magistrates' Court.
Celebrity supporters in court included socialite and campaigner Bianca Jagger, while US filmmaker Michael Moore offered to put up bail. Assange's mother Christine had flown in from Australia for the hearing.
The announcement of bail prompted cheers from about 20 supporters who had staged a protest in support of Assange outside court, but the response became muted as it emerged that he would not yet be freed.
Even if Sweden had not appealed, Stephens said the court had demanded that those standing bail for Assange come up with £200,000 in cash before he could be freed -- and this was unlikely to be raised immediately.
Another member of the legal team, high-profile human rights lawyer Geoffrey Robertson, earlier told the court that the rape and molestation allegations made against his client by two Swedish women should not be taken seriously.
"It was very clear this is not an extremely serious offence. It is arguably not even a rape offence," Robertson said.
He added that Assange was being held in "Victorian" conditions in prison and was being detained in solitary confinement and allowed just one visit per week.
Assange was arrested on December 7th after giving himself up to police acting on an extradition warrant from Sweden.
His legal team has condemned the claims as politically motivated, noting their timing coincided with WikiLeaks' release of thousands of secret US diplomatic cables, which have touched off a global storm. Swedish prosecutors insist their investigation is based on law.
Wearing a dark suit and a white shirt, Assange spoke in court Tuesday only to confirm his name, date of birth and address in Victoria, Australia. His next appearance at the court is on January 11th, with a full extradition hearing set for February 7th to 8th.
Earlier, Assange blasted three global giants that have stopped money being sent to his website -- credit card companies Visa and MasterCard and the Internet payment firm PayPal -- and accused them of being US puppets.
PayPal has said its decision to restrict the WikiLeaks account was not the result of any US pressure. The three firms have been attacked by computer hackers for their stance.
In a statement to Australia's Channel 7, Assange also said WikiLeaks would not stop releasing the data, which has included candid reflections from US diplomats of world leaders and global events.
"My convictions are unfaltering. I remain true to the ideals I have expressed," Assange said, in a statement from prison he dictated to his mother.
US President Barack Obama has led worldwide condemnation of the leaks, calling them "deplorable," and Washington is pursuing a criminal investigation into how WikiLeaks obtained the information.
The latest US diplomatic cables released on Wednesday show American fears about the failure of west African governments to tackle increased drug trafficking through their countries.
Much of the concern focuses on Ghana, which sits at the centre of a new cocaine transit zone, according to the cables revealed in Britain's Guardian newspaper.