* Long dominant Frelimo challenged by smaller MDM
* Renamo boycotts, its guerrillas keep up road ambushes
* Donors, investors worried by persisting unrest
Clashes in Mozambique's second city of Beira between rival party supporters and riot police injured more than 20 people and stoked tension ahead of local elections this week that will test opposition to the Frelimo government.
In the municipal elections on Wednesday, the Frelimo party which has ruled the southern African state since independence in 1975 faces an emerging challenge from the smaller Mozambique Democratic Movement (MDM), after the main opposition party and former rebel group Renamo decided to boycott the vote.
Renamo leader Afonso Dhlakama is a fugitive after the government army overran his jungle camp last month, following sporadic ambushes and skirmishes by Renamo guerrillas which have persisted mostly in central Sofala province. Dhlakama accuses Frelimo of monopolising political and economic power.
These attacks have revived painful memories of the devastating 1975-1992 civil war between Renamo and Frelimo and foreign donors have urged President Armando Guebuza's government to preserve peace like "a treasure".
The unrest is also worrying companies who are developing Mozambique's big coal and gas deposits.
Despite Renamo's boycott, campaigning for Wednesday's local elections had been relatively peaceful until Saturday, when riot police in the port of Beira fired teargas at a rally of supporters of MDM leader Daviz Simango, who is the mayor of Beira, witnesses said. Frelimo party vehicles trying to drive through or past the MDM crowd had been stoned.
MDM partisans then attacked the nearby Frelimo party headquarters, burning several cars. Frelimo's candidate, Jaime Neto, told local television he was injured in the arm.
A spokesman for Beira's central hospital, cited by the Portuguese news agency Lusa, said at least 26 people were treated for injuries. A spokesman for Mozambique's Interior Ministry declined to comment when asked about the incident.
On Wednesday, when voters cast their ballots to elect mayors and local representatives of 53 municipalities across the former Portuguese colony, MDM will be seeking to hold onto the two city mayorships it already holds in Beira and Quelimane, and win more, even taking on Frelimo in Maputo.
"These elections will show the strength of the opposition," Joseph Hanlon, a senior lecturer at Britain's Open University and an expert on Mozambique, told Reuters. Guebuza's government faces criticism over corruption and for not using aid and resource revenues to reduce still widespread poverty.
Hanlon said MDM needed a good showing to prove itself a viable political force to challenge Frelimo in presidential and legislative elections due in October next year, especially if Renamo boycotts them too.
MDM, formed by ex-Renamo members, has eight seats in the national parliament against Renamo's 51 and Frelimo's 191.
Honking horns, waving flags and distributing T-shirts and posters, Frelimo and MDM election convoys criss-crossed the capital Maputo at the weekend, without incidents in that city.
Also on Saturday, suspected Renamo gunmen killed a government soldier and wounded several more in an ambush in central Mozambique, local TV reported. One attacker was killed.
Renamo, which was originally created by the Rhodesian secret services and backed by South Africa's apartheid-era military during the civil war, is no longer viewed as having the armed capacity to fight an all-out conflict any more.
But hit-and-run ambushes by its guerrillas on the major north-south road in central Mozambique have already hurt tourism and there are fears these small mobile groups might also threaten coal export corridors and the activities of foreign companies working to develop gas reserves.
"The Frelimo government has tried a limited military solution but that has been unsuccessful in preventing attacks by small Renamo cells - fighters numbering less than 10 - in rural parts of central and northern Mozambique," Mark Schroeder of risk consultancy Stratfor told Reuters.
With most Mozambicans strongly opposed to any idea of a return to war, MDM is calling for dialogue.
"Renamo and Frelimo, they only know how to fight," said Silverio Ronguane, MDM candidate running for the Matola municipality, a major suburb of Maputo.
"Innocent people are dying ... they could end it if they wanted," Isabel, a 43-year-old nurse in Maputo who only gave her first name, told Reuters, commenting on the unrest.
Guebuza has offered to meet Dhlakama to discuss their differences but the two sides have failed to agree on a venue, and Renamo wants security guarantees and foreign observers.