Pinochet, 82, is under arrest at a private clinic in London after an extradition request by Spain.
Baroness Thatcher, who served Pinochet tea at her London home two weeks ago, wrote to the Times newspaper that he "did so much to save British lives" during the 1982 Falklands War, when Chile supported Britain in its conflict with Argentina.
Pinochet "must be allowed to return to his own country forthwith," Thatcher wrote in her letter to the Times.
Prime Minister Tony Blair's official spokesman said Thatcher had mistaken the nature of the Pinochet case.
"Her remarks suggest that she would like this to be a political process," he said. "It is not a political process. It is a judicial process."
British police arrested Pinochet last week as he recovered from back surgery in a private London hospital after it received an extradition request from a Spanish judge wanting to try the former dictator on charges of genocide, torture, and terrorism.
Blair's Labor government has been reluctant to intervene, and in an interview with European newspapers this week, Blair underlined the government's insistence that the arrest was a judicial matter, not a political one.
The Spanish judge's arrest order against Pinochet contains chilling accounts of abuses.
Men vanish from city streets in front of their wives and children. People are dragged from their beds. A pregnant woman is hauled off to a police station and never heard from again.
With these abuses, Judge Baltasar Garzon made a case for extraditing the former Chilean dictator from London.
In an initial arrest warrant, Garzon cited only one specific victim. But in an addendum released Tuesday and sent to Britain, he outlined how 94 people died or disappeared at the hands of Chile's military junta leaders and Argentine cohorts from 1976-83.
They were allegedly victims of Operation Condor, a campaign by South American military juntas, including Pinochet's, to crush dissent. Victims came from a variety of countries, including Argentina, the United States, Britain and others, Garzon's order says.
Garzon's arrest order states that under Operation Condor, Pinochet, as head of state and the military in Chile, "carried out criminal activities in coordination with Argentine military authorities...issuing orders for the physical elimination of people, and the torture, kidnapping, and disappearance of others."
His case puts forward that Pinochet and the Argentine generals made a systematic, organized attempt to wipe out political opponents because of their ideological beliefs and that this amounts to genocide, according to lawyers working with Garzon.
All but a few of the 94 victimcited in Garzon's document were Chileans living in Argentina, like Jose Luis Appel de la Cruz. He was kidnapped by armed civilians on Jan. 10, 1977, as he walked down a street in the Argentine town of Cipolletti with his wife, Carmen Delard, and their daughter.
The evidence in Garzon's order was based on the report produced by the National Truth and Reconciliation Commission, appointed by former Chilean President Patricio Aylwin.
The report was published in 1991 and identified 3,197 victims of state-sanctioned killings committed under the Pinochet regime, including 1,102 who are still unaccounted for and presumed dead.
That includes some 125 who killed abroad, mostly in Argentina but also former Chilean Foreign Minister Orlando Letelier in Washington in 1976.
The majority of the cases contained in the report detail killings and disappearances within Chile, but also among the victims were several Spanish citizens whose cases triggered the initial Spanish investigation.
"Thousands of people were killed under Pinochet's mandate, and many of them were Spanish. So why shouldn't the Spanish courts get involved?" Isabel Allende was quoted as saying to the Barcelona-based daily La Vanguadia. She is the daughter of President Salvador Allende, who died the night Pinochet's forces staged the bloody takeover, and has the same name as her well-known cousin, writer Isabel Allende.
Possibly the best-known case was that of Carmelo Soria, a 54-year-old Spaniard working for the U.N. Economic Commission for Latin America. His body was found inside his car after it plunged into a canal in a Santiago suburb in 1976.
Soria is believed to have been arrested on July 15, 1976, by members of DINA, Pinochet's secret police. He was taken to a house in the Andean foothills near Santiago where he died of torture.
Investigators determined that Pincohet's agents tried to make the killing look like a car accident. In evidence submitted to the Spanish investigations, Spanish prosecutors said Soria was targeted because he was believed to have helped several people leave Chile to escape persecution by the regime.
Pinochet, who relinquished power in 1990 to a civilian regime after 17 years of authoritarian rule, cannot be prosecuted at home because he has immunity as a senator-for-life.
Garzon says, though, that Spanish law allows him to prosecute genocide no matter where it occurred or the nationality of the victims.
Spain's attorney general's office, however, insists he is wrong and has lodged an objection to his arrest order and the entire investigation. The National Court that Garzon works under is expected to rule shortly on the objection and, consequently, the future of the entire case.