UPDATE 4-Montenegro ruling party claims election victory
* Ruling DPS wins 46 pct of votes but not enough to rule alone
* Djukanovic vows to continue on EU path, improve economy
* Winners will oversee EU accession talks
PODGORICA, Oct 14 (Reuters) - Montenegro's ruling party leader Milo Djukanovic claimed victory in a parliamentary election on Sunday, extending his DPS party's 23-year old rule in the ex-Yugoslav republic as it starts European Union accession talks.
The new government faces a stagnant economy and rising unemployment and will have to work hard to strengthen the rule of law and fight corruption, as required by Brussels.
"As of tomorrow, we will start work on the creation of a government that will continue to lead Montenegro on its path to European... integration and work on improving the living standards of every Montenegrin citizen," Djukanovic told hundreds of cheering supporters in his party's headquarters.
He stopped short of saying if would take the prime minister's post.
An unofficial vote count by CEMI, a non-government election monitoring group, gave 50-year-old Djukanovic's Democratic Party of Socialists 45.6 percent with 94 percent of the votes counted.
That gives them 39 seats in the 81-seat parliament, which will force the DPS to turn to deputies for ethnic minorities to secure a majority. Official results will be released later in the week.
Democratic Front, the main opposition bloc, was a distant second with 23.8 percent. Its leader Miodrag Lekic tried to portray the result as disappointment for ruling party.
"The regime which has led Montenegro so far does not have enough seats to form the government alone," Lekic told a news conference. "This is the beginning of the end for the DPS."
The DPS, as well as its lanky, towering leader, remains popular despite economic troubles and persistent complaints about corruption for having championed independence from Serbia six years ago.
"Montenegro's ruling coalition is probably the only one that has managed to preserve the confidence of voters in such difficult times," Djukanovic said.
Hundreds of his supporters poured into the streets of Podgorica to celebrate, sounding car horns and waving the red national flags. Many chanted "Victory is ours" and "Milo, Milo".
The election was held some six months ahead of schedule, as the ruling coalition sought a fresh mandate during negotiations on Montenegro's eventual accession to the EU.
The DPS has made EU and NATO membership a strategic goal. After Croatia, due to join the EU next July, Montenegro is the only Balkan country that could become a member in this decade, as Serbia, Macedonia, Albania and Bosnia are way behind.
DISMISSED CORRUPTION CHARGES
Djukanovic, as either premier or president, has been the dominant political figure in the nation of 680,000 since communist Yugoslavia collapsed 20 years ago. He resigned two years ago to give way to his hand-picked successor, Igor Luksic, but remained at the helm of the party.
Italian prosecutors once accused him of involvement in massive cigarette smuggling during Yugoslavia's international isolation in the 1990s, but he was cleared of all charges and has persistently denied all such accusations by the local media and the opposition.
Vasilije Kostic, a Podgorica-based economist, said the outgoing government's mandate "has been marked by fiscal consolidation, declining growth and a struggle for the preservation of the economy".
"The next government will have to cope with the debt growth, weak recovery of the economic activity, unemployment (currently at 20 percent) and corruption," he said.
Montenegro's economy flourished after Djukanovic led it away from Serbia thanks to booming tourism and foreign investment on the scenic Adriatic coast.
But this year, Montenegro has been weighed down by the debts of its state-owned aluminium plant as well as the euro zone crisis, and the economy is forecast to grow by only 0.5 percent.
Per capita output is 5,200 euros ($6,700), barely one-fifth of the EU average, but the economy was not a big feature in the campaign.
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