UPDATE 2-Serbian government asks president to call early election
* President Nikolic to call vote Wednesday
* Election likely on March 16
* Centre-right SNS of ex-ultranationalist Vucic eyes big win
* Serbia pursuing EU membership talks
BELGRADE, Jan 28 (Reuters) - Serbia's coalition government asked President Tomislav Nikolic on Tuesday to call an early election with the dominant centre-right SNS party looking to accelerate reforms by cashing in on a surge in its popularity.
Nikolic was expected on Wednesday to schedule the parliamentary election for March 16, just under two years since the people of the western Balkan state last voted.
The SNS (Serbian Progressive Party), the strongest party in the ruling alliance, is well ahead in opinion polls, putting party leader Aleksandar Vucic in pole position to take over from Socialist Prime Minister Ivica Dacic.
Once an ultranationalist disciple of the "Greater Serbia" ideology that fuelled the wars of federal Yugoslavia's bloody disintegration in the 1990s, Vucic has since rebranded himself as a pro-European moderniser.
As deputy prime minister, Vucic has advocated a painful overhaul of Serbia's bloated public sector, the pension system and rigid labour market.
Asking Nikolic to dissolve parliament, the government said in a statement that voters should "have a say in the future direction of state policies". It cited economic reforms, the fight against organised crime and talks that started on Jan. 21 on Serbia joining the European Union.
Investors appear to believe a strong SNS-led government would be better placed to forge ahead with such measures, but doubts remain about the party's capacity and commitment.
Economy Minister Sasa Radulovic, a non-party cabinet member picked for the post by the SNS, resigned on Saturday over stalled legislation to liberalise the labour market and cut loose dozens of loss-making state firms.
In a stinging statement published on the ministry's official website on Tuesday, Radulovic took aim at Vucic.
"The chief obstacle to all reforms was and remains the office of the first deputy prime minister," he wrote.
His remarks may give investors pause for thought, especially after Fitch ratings agency this month cut Serbia's long-term local and foreign currency ratings from BB- to B+, outlook stable, citing a consolidated deficit of 7.1 percent of output and the stalled reforms.
Fearing popular discontent, consecutive Serbian governments since the fall of strongman Slobodan Milosevic in 2000 have shied away from the kind of radical structural overhaul that economists say is needed to put the economy on a sound footing.
Measures to rein in the deficit and cap the public debt will be crucial to negotiations with the International Monetary Fund on a new precautionary loan deal, which will begin on Feb. 26 with the election campaign in full swing.
Vucic's aides did not respond to Radulovic's criticism, but directed enquiries to Finance Minister Lazar Krstic, another non-party cabinet member handpicked by the SNS leader.
Krstic told the online edition of Serbian daily Blic: "In my experience, the office of the first deputy prime minister has not blocked reforms."
The SNS has 73 seats in the 250-seat parliament. It wants a bigger share so it can form a smaller, less unwieldy coalition or even rule alone, which could push Dacic's Socialists into opposition.
Critics say the party is simply trying to exploit high poll ratings before the painful consequences of reforms kick in. Some Western diplomats, too, wprry about the power Vucic has garnered so quickly in a country with a history of strongmen.