KUALA LUMPUR, MALAYSIA - MALAYSIA'S opposition figurehead Anwar Ibrahim has accused ruling party leaders of stoking racial tensions over plans to dismantle discrimination policies favouring ethnic Muslim Malays.

Mr Anwar's Keadilan party is a member of a three-party opposition alliance which made major gains in March 8 elections, seizing control of four states and more than a third of parliamentary seats.

The alliance's plans to transform the New Economic Policy (NEP), introduced in 1971 to boost majority Malays, has drawn criticism from the ruling United Malays National Organisation (Umno) which led a protest in northern Penang state.

Mr Anwar said the opposition wanted to reform the NEP so that it uplifted all poor Malaysians, no matter what their race, and accused elements in Umno of inciting fear among Malays over the plan.

'I am... deeply concerned with the attempt being made by certain elements to stoke the flames of racial hatred' in the aftermath of the elections, Mr Anwar said in a statement late on Saturday.

'This vicious campaign is being orchestrated by a small number of very wealthy Malays and Umno leaders who are themselves guilty of squandering and abusing the NEP.'

At least 1,000 people led by Umno figures defied a police ban to gather outside the office of the newly appointed chief minister of Penang on Friday.

Malaysia's population is dominated by Muslim Malays and Penang is the only state with a majority of ethnic Chinese. It voted in a new government led by the Chinese-based Democratic Action Party (DAP).

All three opposition parties have endorsed the NEP reform plan, including the conservative Islamic party PAS, saying it fosters cronyism and corruption and has neglected impoverished Malays in rural areas.

The policy, which gives advantages in education, housing and business, has been criticised as outdated, and benefiting mostly an elite group of Malay entrepreneurs who enjoy preferences in government contracts.

Prime Minister Abdullah Ahmad Badawi last week cautioned the opposition to tread carefully, warning of 'dire consequences' if it targeted Malay rights.

'They must be responsible when making comments. Don't make comments just to be popular with a certain race,' he told state Bernama news agency in a television interview late on Friday.

Race relations are a sensitive issue in Malaysia, where the spectre of racial violence in 1969 continues to dominate politics.

Ethnic Chinese and Indian minorities led the charge away from the Umno-headed coalition in the elections, but it also lost significant support from Malays. -- AFP