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By Trinna Leong

KUALA LUMPUR (Reuters) - Malaysia's opposition alliance, which has taken strides towards national power in recent elections, is embroiled in a crisis over the leadership of the country's richest state that is tarnishing its image and could break it apart.

The infighting that has gripped the multi-ethnic opposition bloc, led by former finance minister Anwar Ibrahim, is an unexpected boon for Malaysia's 57-year-old ruling coalition, which has been struggling to retain its appeal among voters.

The opposition's three-party Pakatan Rakyat (People's Alliance) was forged in 2008 after the ethnic Malay dominated ruling coalition suffered its biggest ever electoral setback.

The opposition made smaller gains in national elections last May, pledging to bring more transparency to government and phase out policies favouring majority Malays that have underpinned the government's rule. But the alliance has been dogged by divisions between the secular ethnic Chinese component party, Anwar's party, and the Islamist PAS party.

Those differences have now burst into the open over the leadership of Selangor state, an industrial hub neighbouring Kuala Lumpur, which the opposition won control of in 2008 in a huge setback for the government and then retained in 2013.

Selangor Chief Minister Khalid Ibrahim has been accused of corruption and incompetence by Anwar's Parti Keadilan Rakyat (PKR) and the mostly Chinese Democratic Action Party (DAP), who have agreed he should be replaced by Anwar's politician wife.

But Khalid has dug his heels in, refusing to step down even after he was formally fired by his party, PKR, last week. Leaders of the Islamist PAS party have refused to join calls for his dismissal.

If the Islamist party continues to resist Khalid's dismissal, it could herald the end of the six-year alliance and reshape the Southeast Asian nation's political landscape.

Lim Guan Eng, a leader of the ethnic Chinese party, said on Tuesday that if the PAS did not agree to back Anwar's wife "this will immediately lead to a break up of both Pakatan Rakyat in the state and nationally".


A prized win for the opposition, Selangor had a gross domestic product of about $55 billion in 2012, amounting to 23 percent of Malaysia's economy, and is a hub for multinationals. It has been seen as a testing ground for the opposition to prove its competence to take over power at the national level.

"This is by far the biggest hurdle Pakatan has had to face," said Wan Saiful Wan Jan, a political analyst at the Institute for Democracy and Economic Affairs.

"The difference this time is that the problem is created by Anwar's party. It is showing to the public that even Anwar cannot manage his own party."

The ruling United Malays National Organisation (UMNO) has criticised Khalid's leadership, particularly over his management of chronic water supply problems, but now says its state assembly representatives will back him to stay.

The leadership of the Islamist party is due to meet on Aug. 17 to decide its stance on Khalid.

It has not made clear why it opposes Khalid's dismissal, though some in the alliance have said it is because it does not want a woman as state boss. Khalid has the right to remain pending a no-confidence vote in the state assembly.

Cracks within the opposition have been widening since it failed to win power in the 2013 general election, despite winning a majority of the national vote.

PAS, itself divided between Islamic conservatives and modernisers, has alarmed its coalition partners by pushing ahead with plans to implement Islamic criminal punishments such as amputations and stonings in the northern state it controls.

UMNO, which has skilfully exploited opposition divisions, has said it is open to allowing those laws, known as "hudud".

Ibrahim Suffian, director of the Merdeka Center research firm, said the religious differences posed the biggest problem for the opposition even if it resolved the current crisis.

"The hudud issue will be a major one as it will test the resolve of the progressive elements in PAS and is a litmus test of whether the Islamist party is able to rise above sectarian interests to that of national interest," he said.

(Reporting By Trinna Leong; editing by Stuart Grudgings and Robert Birsel)

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