PENANG, MALAYSIA - Malaysia's opposition on Thursday defended plans to dismantle decades-old race-based discrimination policies and denied it will marginalise the ethnic Muslim Malay majority.

Lim Guan Eng, the newly appointed chief minister of Penang state, rejected Prime Minister Abdullah Ahmad Badawi's warning that scrapping the New Economic Policy (NEP) will stoke racial tensions.

"All I said was that we plan to run the government free of the NEP, which promotes cronyism, corruption and systematic inefficiency," Lim said.

"For a start, I said we will only award government procurement contracts through open tender. What is the problem in that? Unless the PM does not like open tenders and likes corruption, cronyism and nepotism," he added.

According to state media, Abdullah warned Lim not to marginalise the Malays and other minority groups in Penang, the only Malaysian state that has a Chinese majority.

"The (Penang) state government must not try to create an atmosphere which can cause racial tensions. Do not marginalise the Malays," Abdullah told the Bernama news agency late Wednesday.

The NEP was introduced in the early 1970s to bridge the wealth gap with ethnic Chinese who dominate business, by giving Malays advantages in education, housing and commerce.

It has been criticised for benefiting only an elite group of Malays, while many in the rural areas still live in poverty.

It was one of the factors behind a flight by ethnic Chinese and Indian voters in Saturday's watershed polls.

Abdullah's ruling Barisan Nasional coalition won with a simple majority but lost four key states to the opposition, an alliance of three parties including Lim's Democratic Action Party.

For the first time in 40 years, Barisan Nasional was also denied a two-thirds parliamentary majority that would have allowed it to amend the constitution at will.

Opposition figurehead Anwar Ibrahim has said the NEP will be set aside in the five states that the opposition now controls. --AFP