* SNC creates alternative government to Assad's
* Fears being sidelined by new diplomatic push to end war
* Indicates will not accept any deal letting Assad stay
By Khaled Yacoub Oweis and Dasha Afanasieva
ISTANBUL, Sept 14 The opposition Syrian National Coalition elected a moderate Islamist as provisional prime minister on Saturday, hoping to avoid being sidelined as world powers renew diplomatic efforts to end the civil war.
The SNC has long sought recognition as a government in exile, but has been hampered by internal divisions and varying pressures from its Arab and Western backers. The election of 48-year-old opposition campaigner Ahmad Tumeh is meant to show it can fulfil that role.
Coalition sources said the decision to proceed with naming a provisional government went ahead despite opposition from the United States, which hopes to convene, along with Russia, a peace conference in Geneva that could come up with a transitional administration.
That follows a deal between Russia and the United States over President Bashar al-Assad's chemical weapons arsenal that could lead to efforts towards a wider settlement of the two-and-a-half year conflict.
Tumeh said his priority would be restoring order to areas of Syria no longer controlled by Assad.
"The priority of my government will be to restore stability in the liberated areas, improve their living conditions and provide security," Tumeh told Reuters after his election at an SNC meeting in Istanbul.
Tumeh addressed coalition members as "comrades on the path to freedom," and indicated that the SNC would not compromise on a deal that could keep Assad in power.
"The Syrian people carried their lives and marched for freedom, not to improve the conditions of their serfdom," Tumeh said, adding that he would name his cabinet shortly.
In a closed door briefing, Tumeh told the coalition that the provisional government would operate from northern Syria, members present told Reuters.
It will be a task fraught with risk, with al Qaeda-linked militants, with a significant presence in the north, ideologically opposed to moderates such as Tumeh, who has preached tolerance and democratic change during a long political career.
The SNC appointed its first provisional prime minister in March, but that bid to create a government-in-exile fizzled out.
SNC member Khaled Khoja said the new provisional government had to prove itself quickly or the coalition as a whole would be undermined, to the benefit of the more hardline Islamists.
"News of (the U.S-Russian) agreement cast a shadow over the appointment of the prime minister," Khoja said.
"I think the government issue is not on their agenda. They are not keen to see this government on board. They (the Americans) wanted to agree on a government through Geneva, not before," Khoja said.
Tumeh, a former political prisoner from the eastern province of Deir al-Zor, got 75 votes out of 97 cast in a coalition ballot in Istanbul. He is expected to choose a cabinet of 13 ministers in a deal reached after two days of talks.
Russia and the United States agreed on a new push to negotiate an end to the civil war on Friday by reviving an international plan for a "Geneva 2" conference.
The original drive for a political solution to the conflict dubbed the "Geneva" plan and calling for a transitional government with full power, went nowhere as Assad refused to cede power, and the opposition insisted that he could not be a part of any new political order.
Financing for the Tumeh government will mainly come from the Gulf, especially Saudi Arabia, which has emerged as the main backer of the coalition, opposition sources said. Khoja said the government would initially need at least $200 million a month.
Louay Safi, a senior member of the coalition said Tumeh would improve the coalition's standing inside Syria.
"Tumeh has an excellent relationship with a wide spectrum of Syrians. He has good reports internally. He's the right person for generating support for the government. The current situation is very chaotic - you need to bring law and order," Safi said.
Tumeh was imprisoned from 2007 to 2010 along with 11 opposition members who had demanded that Assad embark on democratic change in a country ruled by his family since 1970.
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