* Ed Miliband defeats older brother by wafer-thin margin
* Strong union backing propels him to victory
* Vows to unify party after election, leadership battle
(Recasts with result, adds quotes)
By Adrian Croft
MANCHESTER, England, Sept 25 (Reuters) - Former cabinet minister Ed Miliband pipped his brother to win the leadership of Britain's opposition Labour Party on Saturday thanks to union backing and could take the party down a more left-wing path.
The new leader's focus will be on fighting deep public spending cuts planned by the ruling coalition which Labour says threaten public services and will hit the poor hardest.
The party has been searching for a new direction and a new leader since former prime minister Gordon Brown resigned following the party's crushing defeat in a May election, which ended 13 years of Labour rule.
"Today a new generation has taken charge of Labour, a new generation that understands the call of change," Miliband, 40, said as he basked in the applause of thousands of party activists meeting in Manchester, northwestern England.
Labour has recovered in the polls since the election and is now running neck-and-neck with the centre-right Conservatives who formed a coalition with the centre-left Liberal Democrats after the election.
The coalition plans deep cuts to rein in a record peacetime budget deficit it blames on Labour extravagance.
Miliband, a former energy secretary, won by a wafer-thin margin, edging out his older brother David Miliband, a former foreign secretary who was long seen as the favourite.
Miliband has so far backed Labour's election pledge of halving the deficit in four years but there has been speculation he could call for deficit reductions to be spread over a longer period to avoid damaging public services and hurting the poor.
"I believe we must reduce the deficit but I believe we must do so much more than that to have an economy working in the interests of the hard-working people of this country," Miliband said, adding that British society was "too unequal".
Conservative Party Chairman Sayeeda Warsi said that if Miliband wanted to be taken seriously, he must "own up to his role in creating the mess" Britain's finances were in and say what he would do to fix it.
"Ed Miliband wasn't the choice of his MPs, wasn't the choice of Labour Party members but was put in to power by union votes. I'm afraid this looks like a great leap backwards for the Labour Party," she added.
David Miliband, 45, had been expected to continue to pursue the centrist, pro-business "New Labour" policies that helped former prime minister Tony Blair win three consecutive elections between 1997 and 2005.
Ed Miliband, by contrast, has slightly more left-wing views and was propelled to victory thanks to the support of unions who largely finance the Labour Party.
The younger Miliband cast himself as the "change" candidate and said New Labour "got stuck in the past" and lost touch with voters. He criticised Labour's decision to back the Iraq war that toppled Saddam Hussein, saying he would have given more time to weapons inspectors. Four rounds of vote counting were needed before Miliband crossed the 50 percent threshold needed to win. The other candidates -- Labour lawmaker Diane Abbott, former health secretary Andy Burnham and former schools secretary Ed Balls -- were knocked out in turn and their supporters' second preferences allotted.
Ed Miliband held out an olive branch to his brother.
"David, I love you so much as a brother and I have such extraordinary respect for the campaign that you ran -- the strength and eloquence that you showed," the younger Miliband said.
He pledged to unify a party which in recent years has been riven by feuds between Blair and Brown and their supporters.
Conference delegate Pat Colling said the result could not have been closer. "It must have been nerve-racking for their mum," she said.
Continental Europe's left has failed to capitalise on the biggest financial crisis since the 1930s, leaving many socialist and Social Democratic parties struggling to find a way forward.
For reaction to Ed Miliband victory click on [ID:nLDE68O09H]
For a snap analysis click on [ID:nLDE68O0A6]
For a factbox on Ed Miliband click on [ID:nLDE68N0OH] (Additional reporting by Stefano Ambrogi, Editing by Noah Barkin)