Iraqi presidency seeks court decision on Baath ban

* Reaction a bit exaggerated, president says

* Demonstrations in Shi'ite south

BAGHDAD, Jan 21 (Reuters) - Iraq's presidency council has asked a court to rule on the legitimacy of a panel that banned scores of candidates from the March election because of links to Saddam Hussein's Baath party, the president said on Thursday.

President Jalal Talabani, a Kurd, played down the significance of the move by a Shi'ite-led independent committee, saying the resulting furore, including alarm among minority Sunnis who dominated Iraq under Saddam, was overblown.

"It is not a major political crisis ... it will not be. It is a little bit exaggerated," Talabani said.

Angry fallout among Sunnis had threatened to reopen sectarian wounds just as violence between Sunnis and Shi'ites triggered by the 2003 U.S. invasion begins to recede.

U.S. officials have lobbied for a resolution, perhaps fearing that plans for U.S. troops to end combat operations in August ahead of a full withdrawal by end-2011 could be derailed. Vice President Joe Biden was expected to visit, Talabani said.

The Justice and Accountability Commission, a body that replaced a "de-Baathification" committee established by U.S,. administrators after the invasion to rout out Saddam loyalists, has barred 511 candidates from the March 7 parliamentary vote.

The list included prominent Sunni leader Saleh al-Mutlaq, generating widespread protests from Sunnis that Iraq's majority Shi'ites were trying to sideline them. Two thirds of those on the list when it was filtered out on Wednesday turned out to be Shi'ite, potentially defusing the row.

"We have asked our brother Medhat al-Mahmoud (head of the Iraqi Supreme Judicial Council) whether the commission called justice and accountability really exists. As we know, parliament has not voted it into existence yet," Talabani said.

The March election is a pivotal moment for Iraq as it emerges from all-out war.

The country has also started to seal multibillion-dollar deals with global oil firms that could catapult it into the big leagues of oil producers and give it the billions it needs to rebuild. That could be threatened by growing instability.

The panel that banned the candidates is staffed by former members of the U.S.-created de-Baathification committee because parliament has failed to agree on their replacements.

Its leaders are associated with an electoral alliance led by the Supreme Islamic Iraqi Council, a powerful Shi'ite political movement that was formed in Iran.

Analysts say the composition of the list of banned candidates suggests it could be aimed at reducing the electoral threat posed by secular groups to the Islamist parties that have dominated Iraq since the invasion, and not at Sunnis.

In heavily Shi'ite southern Iraq on Thursday, crowds hundreds strong demonstrated to call for the full implementation of laws banning the Baath party. (Editing by Michael Christie)