* Acting PM Omurbek Babanov to move into opposition
* Squabbling parties seek to form new coalition
* Test for Central Asia's only parliamentary democracy
Kyrgyzstan's acting prime minister resigned on Saturday after his party appeared to be frozen out of a new coalition to run the volatile former Soviet republic.
Omurbek Babanov, a prominent businessman who had served as prime minister since December, will move into opposition ahead of the formation a new coalition government that is likely to comprise three of the five parties in parliament.
"He asked to resign because the formation of a new coalition has practically been decided," said Babanov's spokesman, Sultan Kanazarov. The office of the president, Almazbek Atambayev, said in a statement his resignation had been accepted.
A parliamentary democracy unique in Central Asia, Kyrgyzstan's new model of government is backed by the United States but viewed with suspicion by former imperial master Russia. Both countries have military air bases in the country.
The coalition government collapsed on Aug. 22 after two of its four members withdrew in protest against a shrinking economy and corruption allegations against Babanov.
The prime minister, who had continued in an acting capacity since, has denied all accusations of impropriety.
The move risks triggering a prolonged period of political turmoil. Deputies from Ata-Meken, one of two parties to quit the coalition, warned that Kyrgyzstan risks defaulting on its $2.8 billion foreign debt, more than half of gross domestic product.
Weak economic governance and a high level of perceived corruption are seen as key hurdles to development in Kyrgyzstan, which lies along a major drug trafficking route from Afghanistan and has suffered periodic bouts of ethnic violence.
Atambayev, elected last October in the first peaceful transfer of the presidency since independence in 1991, has charged the Social-Democratic Party of Kyrgyzstan with forming a new coalition.
Officials have said the most likely configuration will be a reunion of the Social-Democrats, Ata-Meken and Ar-Namys. Of the four original coalition members, only Babanov's Respublika party is unlikely to be invited back.
The only party outside the previous coalition, Ata Zhurt, enjoys strong support among Kyrgyz nationalists, particularly in the poorer south. It won marginally more seats than any other single party in the last parliamentary election in October 2010.
Political analyst Mars Sariyev said relations between Respublika and Ata-Meken had deteriorated after party members traded corruption allegations. He said Babanov was better suited to a role in opposition than negotiating a way into a coalition.
"Babanov is a businessman. He has carried his aggressive business style into politics," Sariyev said. "It's beneficial for him to move into opposition and maintain forward momentum."
Acting First Deputy Prime Minister Aaly Karashev will replace Babanov pending the formation of a new coalition and the election of a replacement prime minister.
Analysts have identified Zhantoro Satybaldiyev, head of the presidential administration, as a candidate for the premiership.
"He is the voice of compromise. He can convince the different factions and parties to implement reforms," Sariyev said.