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HULU SELANGOR, Malaysia (Reuters) - Malaysia's government scored a narrow win on Sunday in a tense by-election billed as a referendum on Prime Minister Najib Razak's planned economic reforms and his first year in office.
Voters in the rural enclave of Hulu Selangor in opposition- controlled Selangor state, the richest state in this Southeast Asian country, handed the National Front coalition that has ruled Malaysia for 52 years a majority of 1,725 votes out of almost 49,000 cast.
"Najib basically scraped by in a constituency he visited three times," said Bridget Welsh, Malaysia expert with Singapore Management University.
"The National Front is far from winning back the 65 percent of the Malay vote they used to enjoy," she added.
Malays account for 55 percent of Malaysia's 28 million people in a country where there are big ethnic Chinese and Indian populations, and are the backbone of support for Najib's United Malays National Organization, the biggest party in the National Front.
The winning margin of just 3.5 percent of votes cast was far less than the 6,000 projected by Deputy Prime Minister Muhyiddin Yassin earlier in the day, let alone the close on 9,000 margin that the National Front enjoyed in its heyday in 1999, although the government hailed it as a huge win.
"It was a hard fought win for us because we had to fight in a state controlled by the opposition. This will certainly provide us with a strong impetus to carry on reforms," Najib said after the results.
Prior to Sunday the Front had lost seven out of nine parliamentary and state by-elections after stumbling to its worst ever results in national and state polls in 2008 when it lost its two-thirds parliamentary majority for the first time.
Najib took office in April last year and has pledged to reinvigorate a country that has lost out to Indonesia and Thailand in the race for foreign investment.
After the elections and as the global financial crisis hit Asia's third most-export dependent economy, $61 billion in investment fled the country in 2008 and 2009, according to official data.
Najib has pledged economic reforms to win back investment by dismantling some of the privileges enjoyed by Malays that include preferential company ownership rights, cheap loans and access to higher education.
However, policy flip-flops on ending fuel subsidies and introducing a goods and services tax to shore up public finances at a time when the budget deficit hit a 22-year high of 6.4 percent of gross domestic product have further unnerved investors.
The Hulu Selangor campaign was characterized by attacks on the character of the opposition candidate, a former law minister and a Muslim who was accused of drinking alcohol, and by handouts worth thousands of dollars to voters from Najib.
Despite the narrow government win, the opposition, led by former deputy prime minister Anwar Ibrahim, will also come under scrutiny at a time when Anwar is facing charges of sodomy in a case that could end his political career if he is found guilty.
Anwar insists that the court case, due to end in August, is politically motivated but his leadership has come under question after a series of defections by opposition lawmakers.
"For the opposition, this is the first time it has lost a by-election in a state it controls and that is a big defeat," said Ibrahim Suffian of the Merdeka Center, an independent pollster.
Editing by David Chance and Sonya Hepinstall