BAGHDAD (Reuters) - A review panel on Monday invalidated votes cast for 52 candidates in Iraq's election, throwing into doubt the slim lead of a Sunni-backed alliance and setting the stage for a possible spike in sectarian violence.
Electoral officials and politicians said Monday's decision may not alter the final outcome of the election, but a more significant ruling was expected on Tuesday, when the panel considers the fate of six to nine winning candidates.
The developments could raise tensions at a vulnerable time, with Iraq adrift in a political vacuum almost two months after the inconclusive March 7 vote, and U.S. troops preparing to end combat operations in August ahead of a full withdrawal by 2011.
Former prime minister Iyad Allawi, whose cross-sectarian Iraqiya alliance won a slim lead with strong support from the Sunni minority, said his coalition would fight the ruling while some of his allies said they might seek a new election.
"We have instructed lawyers to appeal against the panel's decision," Allawi said in Ankara. "We are very concerned about certain groups controlling the political process in Iraq."
Allawi and other Iraqiya leaders demanded U.N. intervention.
"We will not accept this election and its results if it continues like that. We will call for a new election ... under direct international observation and the U.N. will carry out this election," senior Iraqiya member Osama al-Nujaifi said.
Iraqiya won 91 seats, just two ahead of Shi'ite Prime Minister Nuri al-Maliki's State of Law coalition, which would gain the most from any upheaval in the final result.
At least one of those barred on Monday for alleged ties to Saddam Hussein's banned Baath party was a winner for Iraqiya.
Allawi's allies said they did not see the election result changing because the number of votes invalidated was small. They said any winning candidates affected would be replaced by the next Iraqiya nominee in line in the same constituency.
But any reduction in Iraqiya's representation could reignite Sunni anger, just as the sectarian violence unleashed after the 2003 U.S.-led invasion recedes.
U.S. Ambassador Chris Hill said he was concerned about the time it was taking Iraqi politicians to certify the election results and begin negotiations to form a coalition government.
"This is a country that has an economy that's barely getting itself off the ground ... So this is a country that clearly needs to move ahead," Hill said.
"We are concerned that the process is lagging and that we have not gotten onto the government formation as yet. It seems to me that it's time to get this show on the road here."
Hill said that he believed two or more of Iraqiya's candidates could be affected by Monday's decision.
Saad al-Rawi, one of nine commissioners at the Independent High Electoral Commission (IHEC), of which the review panel is a part, said one winning candidate was affected.
"I don't think this would affect the number of seats for the (Iraqiya) bloc," Rawi said. "Iraqiya got millions of votes, 5,000 or 10,000 votes (less) would not affect it."
The invalidation of votes comes before the expected start next week of a recount in Baghdad, which could also change the result and enrage Sunnis who saw Iraqiya's success as a vindication of their claim to greater political clout.
Sunnis' resentment at their fall from power after the ousting of Sunni dictator Saddam in 2003 helped fuel the bloody sectarian war and a fierce Sunni Islamist-led insurgency.
Iraqis had hoped the election would help the war-damaged country cement improved security and stability.
Instead, the lack of a clear result has spawned protracted political uncertainty as the Shi'ite-led, Sunni-backed and Kurdish factions try to negotiate tie-ups that would allow them to gain a working majority and pick the next government.
"This decision (of the review panel) builds a wall between the political parties when they should be getting closer to forming a government quickly," said Khamis al-Badri, a professor of political science at Baghdad University.
The impasse has also occurred as international oil firms are starting to invest in Iraq's vast oilfields, launching the country on a path that could more than quadruple its oil output capacity to Saudi levels of 12 million barrels per day.
IHEC commissioner Hamdiya al-Husseini said Monday's ruling was not final as the affected candidates had a month to appeal.
Additional reporting by Rania El Gamal and Muhanad Mohammed in Baghdad and Tulay Karadeniz in Ankara; Writing by Michael Christie; Editing by Peter Millership