UPDATE 7-Ukraine ruling party ahead in vote monitors call flawed
* Partial results put Yanukovich party in lead
* OSCE team criticises jailing of rival Tymoshenko
* Nationalists and Klitschko party revitalise opposition
KIEV, Oct 29 (Reuters) - Ukrainian President Victor Yanukovich's party was on course on Monday to secure a new parliamentary majority, but international monitors condemned the election as flawed and said the country had taken a step back under his leadership.
Exit polls and partial results from Sunday's vote showed Yanukovich's Party of the Regions would, with help from long-time allies, win more than half the seats in the 450-member assembly after boosting public sector wages and welfare handouts to win over disillusioned voters in its traditional power bases.
Far-right nationalists and a new liberal party led by world heavyweight boxing champion Vitaly Klitschko also did well.
But a monitoring team from the 56-nation Organisation for Security and Cooperation in Europe, which sent more than 600 observers, criticised the way the vote had been conducted and the imprisonment of Yanukovich's rival, Yulia Tymoshenko.
"Certain aspects of the pre-election period constituted a step backwards compared with recent national elections," said the OSCE - meaning a decline since Yanukovich was elected in February 2010 in a poll judged fair by Western governments.
With exit polls and partial results indicating victory, Yanukovich seems set to use the Regions' good result to cement his leadership before seeking a second five-year term in 2015.
Sunday's vote also threw up a new, potentially awkward, opposition line-up in parliament bringing in the Svoboda nationalists for the first time and Klitschko's liberal UDAR.
But with important policy differences among them it is unclear whether opposition forces can hold together enough in the fickle world of Ukrainian politics to trouble Yanukovich, whose presidential powers are greater than those of parliament.
Judging by comments from his lieutenants, he is likely to take the election outcome as a mandate to press ahead with policies which largely favour the big business industrialists who back him and a coterie of trusted associates and family.
These have implications for his relations with the West and Ukraine's former Soviet master, Moscow.
Under his leadership, Ukraine, the second most populous of the former Soviet states and a major exporter of steel and grain, has become more isolated politically on the international stage than it has been for years.
He is at odds with the United States and the European Union over Tymoshenko, and does not see eye to eye with Russia, which has turned a deaf ear to Kiev's calls for cheaper gas.
The government is also blamed for not stamping out corruption and has backed off from painful reforms that could secure much-needed lending from the International Monetary Fund (IMF) to shore up the economy.
But the West at the same time does not want to alienate Yanukovich and push him towards Moscow's embrace.
The opposition says Yanukovich's rule is marred by deepening cronyism and an increasingly authoritarian style.
The OSCE, handing down its verdict on the election, said the Regions party misused state resources in campaigning. There had been a lack of transparency in the way parties were financed in the campaign and an absence of balanced media coverage.
The inability of Tymoshenko to run as a candidate had also "negatively affected" the election process, it said. She was jailed for seven years last year for abuse of office over a gas deal she struck with Russia when she was prime minister in 2009.
Yanukovich's prime minister, Mykola Azarov, said the result showed confidence in the president's policies. Brushing off international criticism, he said: "To assert that the elections were not transparent, is to say that white is black."
Partial results from the Central Election Commission showed the Regions winning 116 of 225 constituencies; with a projected vote of 32 percent in party-list voting for the other half of the legislature, that would give it 196 seats.
With support from allies such as the communists and independents, the Regions appear certain to reach the 226 seats needed to form a majority.
The main, united opposition bloc, which includes Tymoshenko's Batkivshchyna (Fatherland), was in second place on the party-list vote and leading in 44 individual districts.
The Regions appeared to have fared well despite the government's unpopularity and Yanukovich's authoritarian image.
Many voters had made clear they were frustrated with the performance of the established political parties over the past few years. Corruption is a big concern in Ukraine and many of the 46 million Ukrainians face economic hardship.
SECRET OF SUCCESS
The Regions' success was due in part to increased state handouts and promises to enhance the status of the Russian language - an important pledge for Russian-speaking voters in the president's eastern home region and power base, who fear being at a disadvantage to native speakers of Ukrainian.
The introduction of constituency voting also favoured Regions candidates, who could draw on state resources.
A big surprise came from the nationalist Svoboda (Freedom) party which, according to partial results, won almost 9 percent in the party-list voting. This means the movement, which has links with foreign far-right groups like France's National Front and is accused of anti-Semitism and homophobia, will have significant representation in parliament for the first time.
The unexpectedly strong showing by Svoboda - which is based in the Ukrainian-speaking west, pursues a strongly Ukrainian nationalist agenda and opposes attempts by the Regions to promote the use of Russian language - bolstered the ranks of an opposition which has been weakened by Tymoshenko's jailing.
The other new opposition wild card in parliament will be held by UDAR. Led by boxer Klitschko, under an acronym meaning "punch", the party was in fourth place behind the Regions, communists and the opposition bloc that includes Batkivshchyna.
Klitschko, the two-metre (6-foot-7)-tall WBC heavyweight champion, will now enter parliament at the head of his new party and could be a towering force in the assembly.
He has ruled out any post-election coalition with Yanukovich and says his party will team up with Arseny Yatsenyuk, who leads the united opposition in Tymoshenko's absence, as well as with other opposition groups, including Svoboda, headed by 43-year-old surgeon Oleh Tyahnybok.
But though all the opposition parties have attacked Yanukovich over corruption and cronyism, it is not a foregone conclusion that they can work together in parliament despite pledging to do so.