(Updates tally, adds analyst comment, details)
KATHMANDU, April 14 (Reuters) - Nepal's former Maoist rebels have widened their lead in crucial elections meant to map the country's political future and create a new Himalayan republic, the latest tally showed on Monday.
Results from last Thursday's elections for a special assembly meant to write a new constitution and formally abolish the 240-year-old Hindu monarchy show the Maoists have won 101 of the 178 seats declared, the Election Commission said. They were leading in another eight seats where counting was in progress.
In their election campaign, the Maoists abandoned many leftist policies like nationalisation to embrace foreign investment and public-private partnerships. Their victory could lead to a focus on improving living conditions in one of the world's poorest nations.
But a Maoist victory will be a challenge for the United States, which always opposed negotiating with the Maoists and still labels them a terrorist group, and India, battling its own Maoist insurgency.
Despite their good showing so far, a complicated electoral system will make it difficult for them to win an absolute majority in the new assembly, charged also with running the country for at least two years.
Their likely win has puzzled many analysts, who predicted the Maoists would place third. The earlier favourites had been the Communist Party (Unified Marxist-Leninist) -- known as Communist UML -- and the Nepal Congress, who have ended up with 24 and 30 seats respectively.
The Madheshi People's Rights Forum, which organised many of the last year's disruptive protests by a disgruntled ethnic group in Nepal's southern plains, has won 15 seats.
"It is amazing. It is a huge defeat, especially for the Nepali Congress and the UML," said Rhoderick Chalmers, Nepal head of the Brussels-based think-tank, International Crisis Group.
"I think it is a vote for change, a change in the way of doing politics and a change in the way state functions."
The Maoists, who signed a peace deal in November 2006 to end the civil war that killed at least 13,000 people, have toned down their use of the rhetoric of Marx and Mao for now.
During the war, human rights groups accused the Maoists of kidnapping, extortion and killings and other brutal tactics that earned them a terrorist tag. The Nepal army was also accused of widespread abuses at the time.
But since joining the peace process two years ago, the Maoists' calls for a "new Nepal" and radical land reform in favour of small-time farmers seems to have gone down well in a country where corruption and squabbling have become almost synonymous with politics.
"Other political parties did not understand the sentiments of the people and failed to live up to their promises in the past," said Ram Kumar Khadayat, a 25-year-old university student. "So people have given the Maoists a chance. Let's see how they do."
Some analysts said that the perception that the Maoists' firmer ideology and vision for the future had given them an advantage.
"The immediate problem is how to raise petroleum prices without any political repercussions," added Kunda Dixit, editor of the Nepali Times.
Ending the monarchy still appears to top the Maoist agenda.
"He should leave the palace immediately," senior Maoist leader Baburam Bhattarai was quoted as saying in the Kathmandu Post, referring to King Gyanendra, who seized absolute power in 2005 but has since been stripped of almost everything but his title. (Editing by Jeremy Laurence)
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