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Protesters call for the removal of South Africa's President Jacob Zuma as the country commemorates the anniversary of the country's first democratic elections in Durban, South Africa, April 27, 2016. REUTERS/Rogan Ward

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By Tanisha Heiberg

PRETORIA (Reuters) - South Africa's High Court ruled on Friday that a decision seven years ago to drop 783 corruption charges against President Jacob Zuma was irrational and should be reviewed, another setback for the scandal-ridden leader who faces calls for his resignation.

The decision in April 2009 to set aside the charges allowed Zuma to run for president in elections the same month.

The South African leader has been beset by scandal during his tenure. This year's local elections pose a major risk for Zuma's ruling African National Congress, facing a strong challenge from opponents seeking to capitalise on what they see as the president's missteps.

National prosecutor Mokotedi Mpshe's decision at the time was based on phone intercepts presented by Zuma's legal team that suggested the timing of the charges in late 2007 may have been part of a political plot against him.

However, Judge Aubrey Ledwaba said Mpshe's thinking and behaviour was irrational, especially his failure to disclose his decision to prosecutors until the moment he announced it to the nation at a news conference.

"If the decision had been rational and above board, why the secrecy?" Ledwaba said.

The ruling adds pressure on Zuma, who has faced calls to quit even from within the ANC since a damning constitutional court judgement against him last month.

The three-judge bench ruling does not automatically reinstate the charges against Zuma, a decision that can only come from the prosecuting authorities. It was unclear when such a decision would be taken.

The rand hit a five-month high against the dollar after the ruling and government bonds also firmed.

"Mr. Zuma should face the charges as applied in the indictment," Ledwaba said, summarising the unanimous ruling.

It was not immediately clear whether Zuma would appeal, but the presidency said he would weigh the judgement and its consequences, adding that Zuma faced no charges in court at present.

The ANC said the ruling would not harm the party's image or its chances at the local elections in August.

Shaun Abrahams, head of the National Prosecuting Authority, told Reuters he was studying the ruling.

Opposition Democratic Alliance leader Mmusi Maimane, whose party brought the court application, demanded the charges against Zuma be reinstated.

"Jacob Zuma is not fit to be the president of this country," he told reporters. "The decision that they took was irrational and we still maintain that Jacob Zuma is corrupt. Jacob Zuma must face the full might of the law. He has already violated the constitution. There is no debate about that."

ARMS DEAL

Analysts said the credibility of the president and the prosecuting authority were in question after the ruling.

"The credibility of the Presidency and the NPA are at stake due this a very far-reaching decision," said Professor Shadrack Gutto, a law lecturer at the University of South Africa.

"For the ANC it's a question of what to do ahead of the August elections. Is this the kind of leader they want to have as a symbol? It is going to have a negative on the ANC. Opposition parties are going to take advantage of it."

The hundreds of corruption charges relate to a major government arms deal arranged in the late 1990s.

Zuma said last week that an investigation into the deal had found no evidence of corruption or fraud. Critics denounced the findings as a cover-up and said they would continue to campaign for justice.

Zuma, then deputy president, was linked to the deal through his former financial adviser, who was jailed for corruption. This almost torpedoed Zuma's bid for president until the charges against him were dropped.

Earlier this month, Zuma survived an impeachment vote after the Constitutional Court said he breached the law by ignoring an order to repay some of the $16 million in state funds spent on renovating his home.

In December, he was widely criticised for changing his finance minister twice in a week, sending the rand plummeting, alarming investors and prompting warnings that South Africa's credit rating is under threat of a downgrade to "junk" status due to policy and political upheavals and low growth.

(Additional reporting by Johannesburg newsroom; Writing by James Macharia; editing by Giles Elgood)

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