* Georgian rebel region holds first election since war
* Georgia denounces poll as illegal
* Internal opposition in region builds over leader Kokoity
(Adds comments from South Ossetian leader, Georgia)
TSKHINVALI, Georgia, May 31 (Reuters) - Georgia's rebel region of South Ossetia voted on Sunday in its first election since Russian forces saved it from being retaken by Georgian troops, but internal tensions grew over its leader's policies.
Georgia denounced the poll as illegal.
A sliver of land with an official population of 70,000, South Ossetia broke from central Georgian rule in a war in the early 1990s as the Soviet Union crumbled.
When Georgian forces launched an attack last August to retake it, Russian forces beat them back and Moscow has since recognised the territory as an independent state.
In the run-up to the election for a 34-seat parliament, the region's opposition, while still supporting secession from Georgia, criticised separatist leader Eduard Kokoity for squandering money pumped into the shattered region by Moscow for post-war regeneration.
"I want these elections to make life better, I want the city to finally start to be rebuilt," said Atsamas Kokoyev, a resident of the main city Tskhinvali, after voting. "I want no more war. I want life to return to normal."
Apart from Russia, only Nicaragua has recognised the region's independence.
Georgia, whose sovereignty over South Ossetia is recognised by the rest of the world, denounced the poll as illegitimate.
"What they in South Ossetia call elections are very far from real elections," Georgia's minister for reintegration, Temur Iakobashvili, told reporters in Tbilisi.
The opposition says Kokoity, a 44-year-old former wrestler, wants to change the constitution so he can run for a third term in 2011 and that an overwhelming success in the election for a parliament would help him do this.
"He needs a submissive, dull parliament so that he can change the law and stay in power," Albert Jussoyev, the leader of the opposition, told Reuters in an interview last week.
Kokoity, who has been in power since 2001, says he does not want to stay in power. Supporters hail him for leading South Ossetia to independence after what they say were centuries of outside dominance.
"Today's election is a test of our people's maturity, a test of the stability of our democracy," Kokoity told reporters after voting. "We are voting today for an independent South Ossetia though we have close relations with Russia and will continue to strengthen those relations."
Russia has poured in money and says it will open a military base there. But thousands are still homeless after the war and thousands more unemployed.
The opposition says the population, which they estimate at less than half of the officially registered 70,000, are losing patience with Kokoity, and have called on Russia to intervene.
The local election commission says 52,436 people have been registered to vote for the 34-seat parliament and officials said more than half of those registered had turned out to vote. (Editing by Richard Balmforth)
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