* Constitutional court decision is blow to government
* Likely to head off opposition unrest in major oil producer
* Parliamentary boycott blocking economic development plan
* Any new chamber set to be dominated again by gov't critics
(Adds details on development plan, edits)
KUWAIT, Sept 25 (Reuters) - Kuwait's top court rejected a
government bid to alter voting boundaries on Tuesday, leaving it
without a clear option to break a parliamentary deadlock that
has stymied important economic bills in the major Gulf Arab oil
producer.
The ruling was likely to defuse tension with an opposition
increasingly assertive after democratic revolutions elsewhere in
the Arab world. The opposition had warned it would take to the
streets if the court ruled in the government's favour.
But the decision did not solve the problem of how to set up
a functioning parliament. In the last assembly, dissolved on a
technicality by the Constitutional Court, Islamist and tribal
lawmakers clashed with the government over finance bills
including a far-reaching economic development plan.
The opposition had said the government's petition to the
court to change the electoral boundaries was a manoeuvre to give
the edge to government-friendly candidates in a new election.
In the event, the court declined to rule, saying it did not
have the authority to dictate electoral boundaries.
The ruling suggests that a new assembly, whenever it is
elected, is likely to have a similar make-up to the last one and
could prove just as obstructive to the unelected government
dominated by the Al-Sabah family.
Kuwait, a big oil exporter and among the richest countries
in the world per capita, has a relatively open political system
by Gulf standards, and has avoided an uprising like those that
have ousted dictators in four Arab states since early 2011.
The cabinet said in a statement that it "appreciated" the
court's decision and had asked relevant authorities to study the
implications and consider the next steps. It did not elaborate.
While parliamentary approval is needed for major bills and
the budget, the monarchy retains a firm grip on the main
government portfolios, and political parties are banned.
"The constitutional ruling today means that the government
should resign immediately," Islamist MP Faisal al-Muslem wrote
on Twitter, calling for new parliamentary elections.
"TRIUMPH OF THE WILL"
"This is a triumph of the will of the nation," Islamist MP
Waleed al-Tabtabie said in a message to almost a quarter of a
million followers on Twitter. Along with other members of the
opposition, he has been calling for an elected government.
The Constitutional Court angered protesters with a separate
ruling earlier this year when it effectively dissolved the
opposition-dominated parliament elected in February.
The old, more government-tilted assembly that it reinstated
has been unable to convene due to a boycott by mainly opposition
MPs. Analysts say this means another dissolution is likely, with
a new election this year or next.
The government had said it needed the Constitutional Court
to rule on the electoral law to protect future elections from
legal challenges.
"The government's position has been partially compromised
but this is unlikely to be a major event for the prime minister
or the ruling family," said Ayham Kamel, a Middle East analyst
at Eurasia Group.
The decision puts pressure on the government but also on the
opposition, according to Kristian Ulrichsen, research fellow on
Gulf States at the London School of Economics.
"They will need to show the electorate that they have a
viable way out of the impasse, rather than the rash of populist
initiatives they focused on in the last parliament," he said.
During their few months in power before parliament was
dissolved, members of the opposition tried to pass legislation
such as introducing the death penalty for blasphemy.
"Their focus was on anti-corruption legislation and on
settling political scores," a Kuwait-based diplomat said.
In April the parliament rejected a draft bill on the
country's 30 billion dinar ($108 billion) development plan as
opposition deputies accused the government of failing to make
progress on major investments envisaged.
The plan, spread over four years until 2014, provides for a
series of huge infrastructure projects including a new airport
terminal, new oil refinery and hospitals and is aimed at
diversifying the economy and attracting foreign investment.
Details must be voted on each year and in April
parliamentarians turned down the part of the plan for the
2012-2013 fiscal year.
(Additional reporting by Ahmed Hagagy in Kuwait and Rania El
Gamal in Dubai; Editing by Mark Heinrich)