* Iraqi election law needed for Jan. 16 national polls

* Law held up over whether voters choose parties or people

By Suadad al-Salhy and Khalid al-Ansary

BAGHDAD, Oct 9 (Reuters) - A feud over how much choice voters will have in Iraqi elections in January has held up passage of an elections law, highlighting a clash between party interests and voters' desire to hold politicians to account.

Iraq's fractious parliament has been unable to agree on whether to use an open list system in the Jan. 16 national elections, allowing voters to select individual candidates, or a closed list that gives voters only a choice of parties which in turn determine who occupy the seats they win.

The open list system holds members of parliament accountable to their constituents while the closed list reward party loyalty and shield individual candidates from democratic pressure.

If no agreement is reached, Iraq would be forced to revert to the closed list system used in the last polls in 2005, likely fuelling resentment among already disaffected voters and angering powerful clerics who support an open list.

"The closed list will deter voters and cause a political crisis in the country," said lawmaker Abdul-Karim al-Inizi.

January's elections are seen as a crucial test for Iraq's fragile democracy just as U.S. forces prepare to withdraw.

Violence has dropped sharply, but the polarised political scene is in a state of uncertainty as sectarian alliances that have dominated Iraq since 2005 are abandoned to make way for new blocs politicians are betting will win them votes.

The use of a relatively open list system in provincial polls last January was praised as a milestone in solidifying a transparent, accountable democracy in Iraq.

The system worked well for Prime Minister Nuri al-Maliki, whose law-and-order message resonated with voters fed up with years of bloodshed and a persistent lack of basic services.

Gains for Maliki's Dawa party came at the expense of rivals like the Supreme Islamic Iraqi Council (ISCI), a formidable Shi'ite party whose popularity has waned as Maliki's has grown.

It is no great surprise then that Sadiq al-Rikabi, a top political advisor to Maliki, says the prime minister has from the start backed an open list for January's national polls.

Senior Shi'ite cleric Grand Ayatollah Ali al-Sistani, whose influence among Iraq's Shi'ite majority is unparalleled, has issued a stern warning against a closed list system. Washington also favours an open list. On Tuesday, U.S. President Barack Obama urged Iraq to pass the election law soon. [ID:nN06449387]

BEHIND CLOSED DOORS

While few Iraqi politicians are willing to openly buck such pressure and push for a closed list system, there is resistance to an open list from large, well-organised parties who believe their chances at the polls are better with the status quo.

Wathab Shakir, a Sunni Muslim lawmaker, said some parties publicly calling for an open list were clinging tightly to the closed list system behind the scenes.

Three months before the vote, a showdown is expected between Maliki's State of Law coalition and former partners such as ISCI and supporters of anti-American cleric Moqtada al-Sadr, who recently formed a new bloc, the Iraqi National Alliance (INA).

A senior member of Sadr's party said the INA was privately pushing for a closed list system "to take this card away from Maliki," whose coalition includes a number of smaller groupings and tribal figures who might fare well with an open list.

"There is a great fear among the larger political blocs about the adoption of an open list. This method means that Iraqis will slap them and hold them responsible for what's happened since 2003," said political analyst Haider al-Mulla.

After months of inaction and squabbling, it is increasingly unlikely parliament will pass new legislation including a open list. A semi-open, hybrid list could be a compromise.

Kenneth Pollack, an analyst at the U.S. Brookings Institution, said recently that the failure to choose an open list system would be a signal of the deep divisions still plaguing Iraqi politics and undermining future security.

"We're seeing all of Iraq's various political factions vying for power in a way that serves their short-term good, but not necessarily the long-term good of the country," he said.

Still, there are practical obstacles to an open list election in a nation relatively new to democracy. It may be hard for independent candidates to market themselves individually and some fear an open list would sideline minorities and women.

"The open list requires great logistical effort ... and there also is no guarantee women will get their share," said senior ISCI member Jalal al-Din al-Sagheer. (Additional reporting by Waleed Ibrahim; Writing by Mohammed Abbas; Editing by Missy Ryan and Samia Nakhoul)

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