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Italy's Prime Minister Paolo Gentiloni waves as he leaves after meeting his counterpart from Britain Theresa May at Number 10 Downing Street in London, February 9, 2017. REUTERS/Toby Melville

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By Crispian Balmer

ROME (Reuters) - A new breakaway leftist movement holds the balance of power in Italy's upper house Senate, complicating life for Prime Minister Paolo Gentiloni as he confronts an array of difficult economic decisions.

A handful of dissidents quit the ruling Democratic Party (PD) at the weekend following an acrimonious fallout with Matteo Renzi, who has triggered a leadership contest in the group in an effort to silence his many opponents and reassert his control.

Rather than try to get one of their own number elected PD leader, the dissidents have set up a new party, the Democratic and Progressive Movement (MDP), and announced on Tuesday they would have 37 deputies in the lower house and 14 senators.

When rumours of the split were bubbling last week, sources within the PD speculated that more of their parliamentarians might break ranks. But although the numbers were relatively few, they could still cause problems for Gentiloni.

"You only need a few votes to make the coalition wobble in the Senate," said Luigi Zanda, the head of the PD in the upper house. "There is no question that this split has made the country less stable," he told Il Messaggero newspaper.

Renzi quit as prime minister last December following a crushing defeat in a referendum on constitutional reform and was replaced at the head of the government by PD stalwart Gentiloni.

To take office, Gentiloni needed to win parliamentary votes of confidence, and while he easily prevailed in the lower house, his majority in the Senate was just 11, meaning that the MDP have the numbers to bring him down in future votes.

The MDP, which is backed by former prime minister Massimo D'Alema and former industry minister Pier Luigi Bersani, has pledged to support Gentiloni, but their loyalty could be tested in the coming weeks as the cabinet battles budget complications.

POISON

The European Union wants 3.4 billion euros (2.90 billion pounds) of fresh budget cuts this year. The government has not said if it will comply, but if it does, possible options include more privatisations and tax hikes -- both likely anathema for the MDP, which will be looking to burnish its leftist credentials.

Even if it ducks this EU bullet, the government faces a very fraught 2018 budget, with Brussels expecting 20 billion euros of deficit cuts and no easy solutions to hand.

The current parliament is scheduled to carry on until early 2018, but a number of political leaders, including Renzi, want the vote brought forward to September.

The PD schism risks making it harder for Renzi to regain power. Opinion polls say the MDP will get anything from 3 to 8 percent of the vote, largely at the expense of the PD, and continuing bickering could dent the PD's standing still further.

Renzi "has destroyed the PD, he has emptied it of its democratic content and totally gutted it of its political inspiration," D'Alema said on Monday, underscoring the bitterness that has poisoned Italy's centre-left.

One of the big benefactors is likely to be the anti-establishment 5-Star Movement, which some polls say has overtaken the PD as Italy's most popular party.

However, with its support pegged at just under 30 percent, the 5-Star is unlikely to win enough seats to form a government by itself, and it has always ruled out joining any coalition.

(Additional reporting by Massimiliano Di Giorgio; Editing by Mark Trevelyan)

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