Musharraf had got interim bail in the case and had approached the court for extension. However, Lahore High Court rejected his application as his defence lawyers failed to appear before the two-member bench, reported Xinhua.
The Federal Investigation Agency (FIA), which is investigating the case, had sought cancellation of Musharraf's bail as it needs his custody to interrogate him about his role in Bhutto's assassination in Rawalpindi.
FIA prosecutors told reporters Wednesday that they will present Musharraf in the anti-terrorism court, conducting the trial of suspects charged with involvement in the assassination of Benazir Bhutto, to seek his physical remand.
They said the investigators have "solid evidence about Mushararf's aid and abetment in the incident" and that the court had valid grounds to accept their request for cancellation of the interim bail.
When the two-member bench of the Lahore High Court resumed hearing of Musharraf's request for bail extension, his defence lawyer failed to appear. The court had to wait for an hour but even then his lawyer did not appear.
A woman lawyer later appeared but she could not produce Power of Attorney to pursue the case when the court asked her to show the document.
Musharraf's interim bail was rejected a day after the anti-terrorism court ordered that the former president be included in the investigation into the murder of Benazir Bhutto.
The FIA lawyers had argued that Musharraf has not yet been formally included in the case and that they want to question him as his government had failed to provide proper security to Benazir Bhutto.
Judge Chaudhry Habib-ur-Rehman directed the FIA to complete the investigation and submit a report in the apex court. The hearing was adjourned until May 3.
Musharraf has been accused of failing to provide adequate security to Bhutto when she returned to Pakistan from exile in 2007.
The court had previously declared Musharraf an "absconder" and issued an arrest warrant for him after he failed to cooperate with investigators when he had been living in self-exile. He returned last month and was also granted interim bail in the case.
The court had earlier directed authorities to attach his properties and to freeze his bank accounts.
Musharraf has dismissed all charges as politically motivated and insisted that he had warned Benazir Bhutto of imminent threats to her life.
Musharraf has already been arrested in the case of keeping the judges in illegal confinement when he imposed emergency rule in 2007.
The former president is also facing high treason charges for abrogation of the constitution when he imposed emergence rule in 2007.
Five individuals have filed petitions for high treason proceedings in the Supreme Court.
However, the interim government has refused to pursue the case because of its limited role. The interim government has prayed to the apex court to leave the case to the next elected government.
Musharraf, who ruled Pakistan from 1999 to 2008, has also been disqualified for the May 11 parliamentary elections due to criminal cases against him in court and the imposition of emergency rule. He is now leading his own All Pakistan Muslim League party.