Israeli PM's Kadima party sets September 17 primary

JERUSALEM (Reuters) - Israel's ruling Kadima party said on Tuesday that a primary election that could replace Prime Minister Ehud Olmert would be held on September 17.

The primary to choose a party leader has been prompted by a police investigation that could force Olmert from office and could disrupt peace talks with the Palestinians and Syria.

Several senior Kadima officials, including Foreign Minister Tzipi Livni, are campaigning to replace him as prime minister. It is unclear if Olmert will run in the primaries.

Olmert had agreed with his Labor coalition partner to hold the internal election in September to try to keep the coalition together after the police investigation.

A newly elected leader for Kadima, the biggest party in parliament, could try to form a new government.

If they fail, Olmert has a chance of remaining as prime minister until the next election, which could be held early before the end of the year. The next scheduled election is not until 2010.

"It's impossible to continue this way. We need to make repairs, first of all internally, and this process demands a different prime minister," Livni said on Channel 10 television.

U.S. businessman Morris Talansky testified in an Israeli court in May as part of the investigation that he had given Olmert, a former mayor of Jerusalem, $150,000 in cash-stuffed envelopes during a 15-year period.

Both Olmert and Talansky have denied any wrongdoing. Olmert has described the funds as legitimate contributions to election campaigns he waged before becoming prime minister in 2006, but said he would resign if indicted.

In the event of a run-off, a second round of elections would be held on September 24, Kadima said in a statement.

(Writing by Ari Rabinovitch; Editing by Alison Williams)