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FILE PHOTO - Italy's former Prime Minister Silvio Berlusconi gestures during the television talk show "Porta a Porta" (Door to Door) in Rome, Italy June 21, 2017. REUTERS/Remo Casilli/File Photo

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By Gavin Jones and Steve Scherer

ROME (Reuters) - He is an 80-year-old convicted criminal whose last government ended with Italy on the brink of bankruptcy - and he may well be kingmaker at the next election within a year.

Mayoral elections on Sunday showed four-time Prime Minister Silvio Berlusconi's centre-right Forza Italia party remains a force to be reckoned with despite the billionaire media tycoon's sex scandals and legal troubles.

"Berlusconi sees this as the last challenge of his career," said Renato Brunetta, a close ally for over 20 years and Forza Italia's lower house leader. "He feels he has suffered many injustices and deserves one last shot. Who can deny him that?"

Matteo Renzi, leader of the ruling Democratic Party (PD), and Beppe Grillo's anti-establishment 5-Star Movement have dominated the national scene in recent years, relegating Forza Italia to a distant third or fourth in the polls.

Yet in the mayoral ballots, Forza Italia and its anti-immigrant Northern League allies trounced the PD and 5-Star in cities all over the country, suggesting they have momentum behind them just as the national vote comes into view.

And crucially, after several failed attempts at electoral reform, Italy looks set to vote next year using proportional representation. Polls suggest this will lead to a fragmented parliament where no party has the votes to govern alone.

This means Berlusconi, who spent months recovering from open-heart surgery last year, is likely to be a key player both leading up to the election, which must be held by May 2018, and in negotiations to form a government after it.

Forza Italia has 14 percent of voter support, roughly the same as its Northern League allies and well behind PD and 5-Star which have about 28 percent each, according to opinion polls.

TAX FRAUD

A series of scandals have undermined Berlusconi's political career.

Under pressure from his parliamentary and international allies, he was forced to quit as prime minister in 2011 as Italy's borrowing costs soared to unsustainable levels.

He left office amid revelations about erotic parties at his private villa and accusations he paid for sex with an under-aged prostitute. He was cleared of the sex charges but he is still on trial for allegedly bribing witnesses to testify in his favour.

In 2013, he was convicted of an elaborate fraud scheme to cut the tax bill of his TV company Mediaset. He served his sentence helping Alzhheimer's patients in an old-people's home.

He was kicked out of parliament and barred from public office, but he is appealing to the European Court of Human Rights in Strasbourg. It is due in November to hear his appeal against the Italian law that excludes him from office.

But millions of voters still back him.

Giovanni Orsina, political history professor at Rome's Luiss University, said moderate centre-right voters had nowhere else to go, as the only alternatives were the Northern League and 5-Star, both widely seen as populist and extremist -- and then there's Renzi.

The 42-year-old Renzi, who quit as prime minister in December after losing a referendum on his planned constitutional reform, "is now discredited and seems politically older than Berlusconi because his defeats are more recent," Orsina said.

These Italians "couldn't care less" about Berlusconi's sex life, Orsina said, and they see him as unfairly targeted by judges. His political failures have dimmed in voters' memories because his successors have failed equally badly to revive the country's chronically sluggish economy.

"TREE OF FREEDOM"

Alessandra Ghisleri, head of the Euromedia polling agency which Berlusconi relies on for his own polls, says he still communicates better than his rivals and voters remain attracted by his personal charm and charisma.

"It's as if he plays by no rules, he is himself and that's it, with no faking, his electors like him because he is direct," she said. "He is also good at listening, he always faces who he's talking to."

Berlusconi spends most of his time at his villa outside Milan but comes to Rome for two nights a week to meet lawmakers and discuss political strategy, says Brunetta, and he is already drawing up his programme for the next election.

His flagship policy will be a drastic simplification of the tax code, with all the income tax rates substituted with a "flat tax" of 20 percent for both individuals and companies. He has also hit on a new symbol, the "Tree of Freedom", to get his message across.

"The roots are our values, the trunk is our history, the branches are our broad themes and the leaves and the fruit are our solutions to the problems," said Brunetta.

It is unlikely that the court in Strasbourg will come to Berlusconi's rescue in time for the next election, and even if it does, it is far from sure whether he would be accepted as the centre-right's leader by his Northern League allies.

Yet Berlusconi continues to be a central player on Italy's political scene and a formidable campaigner, while Renzi stumbles from one defeat to another and 5-Star struggles to broaden its appeal.

Deborah Bergamini, a Forza Italia deputy and its head spokeswoman, said Italians had tired of Renzi's constant media presence while Berlusconi, after a long spell out of the limelight, had timed his return perfectly.

In the two weeks leading up to Sunday's vote, he made some 40 appearances on national and local television talk shows to stump for Forza Italia and its candidates.

"It's important to know how to wait for the right moment to offer oneself to the electorate," Bergamini said.

(Editing by Anna Willard)

Reuters