KUALA TERENGGANU, Malaysia (Reuters) - Malaysia's opposition Islamist party won a fiercely contested by-election on Saturday in a vote that was cast as a referendum on incoming prime minister Najib Razak.
The Pan-Malaysian Islamic Party (PAS), one of three partners in Anwar Ibrahim's opposition alliance, won the seat in Kuala Terengganu by a much bigger-than-expected 2,631 votes, overturning a government majority of 628 votes.
Cheering PAS supporters took to the streets of Kuala Terengganu, a state capital of almost 300,000 people in rural northeastern Malaysia, in cars and on mopeds, honking horns and waving green and white party flags.
"This sends a message to the government that they are not relevant any more," said Hairani Mohamad, a PAS voter.
Najib, who takes office in March after Prime Minister Abdullah Ahmad Badawi agreed to step down early, had declared the seat a "must win" ahead of polls for top party jobs in his United Malays National Organization (UMNO), the main government party.
The only poll published during the campaign had predicted a narrow victory over the ruling National Front coalition for PAS, which wants to establish an Islamic state in this Southeast Asian nation of 27 million people.
Analysts said the by-election result could raise political risk at a time when Najib, who heads the coalition which has ruled Malaysia for 51 years, has to confront the possibility of Malaysia's first recession in eight years.
"This puts him (Najib) in a position of weakness if we assume he will become the next prime minister," said Bridget Welsh, a Malaysia expert at Johns Hopkins University.
The result does not fundamentally alter the balance of power in the Malaysian parliament where the government still has a majority of 52 seats in the 222-member house.
The vote was seen as a test of Malay Muslims, UMNO's core support, who account for 88 percent of voters in Kuala Terengganu, well above the national average of 60 percent, and some of whom have shifted support to PAS.
Najib, who is standing unopposed in UMNO polls, had promised to enact reforms such as loosening preferential ownership for ethnic Malays to help the economy which has lost foreign investment to neighbors such as Thailand in recent years.
He may now face a backlash from UMNO against any dilution of Malay rights which means he will not be able to accommodate demands for greater rights from politicians in ethnic Chinese and Indian parties in the governing coalition.
"The bigger picture is not about Najib's personality but that the ruling coalition's brand of multiracialism is just not attractive any longer because its communalist roots has angered many," said Ooi Kee Beng, fellow at the Institute of South East Asian Studies in Singapore.
Analysts say the vote in Kuala Terengganu may also help unify the three-party opposition, despite worries by an ethnic Chinese party in Anwar's alliance over PAS's push for Islamic laws.
"We are stronger now, our strength and cohesion (as an alliance) in this by-election marks a very big change," said PAS President Hadi Awang, who has refused in the past to endorse Anwar as leader of the opposition alliance.
Anwar, a former deputy prime minister until he was imprisoned on what he says were trumped up charges of sodomy in the late 1990s, returned to parliament in August last year with a huge majority.
However, he lost traction when he failed to deliver on promises to take power on September 16 with the aid of government defectors, but this win signals that he is a still a major political force.
"Najib is the main loser and Anwar is still the man of the hour," said James Chin, political science professor at Monash University in Malaysia.