KUALA LUMPUR - MALAYSIA'S coalition government faces a by-election next month which analysts say will be a critical test of public reaction to its reform promises after disastrous polls in March.

The by-election in northern Terengganu state, a battleground between the ruling United Malays National Organisation (Umno) and the Islamic opposition party PAS, was triggered by the death of a deputy minister.

Election Commission deputy chairman Wan Ahmad Wan Omar announced Friday that the by-election would be held on January 17, with parties to declare their candidates on January 6.

After wrangles in the past over allegations of fraud and vote-buying, Wan Ahmad said that MAFREL (Malaysians for Free Elections) would be allowed to monitor the process.

'We like having MAFREL as observers as it boosts the confidence of people and transparency,' he told a press conference.

The vote comes at an unfortunate time for Umno, which leads the Barisan Nasional coalition that was humbled in March elections - losing a third of parliamentary seats and five states to the three-member opposition alliance.

Since then it has been in a state of disarray that is unlikely to be resolved until its annual assembly next March, when deputy prime minister Najib Razak is expected to replace unpopular premier Abdullah Ahmad Badawi.

Analysts said Umno faces a tough by-election battle against PAS, which along with Anwar's Keadilan party and the Chinese-based Democratic Action Party makes up the opposition alliance.

'It will be a classic battle between two Malay political parties in a Malay heartland,' said Prof James Chin, professor of political science at the Kuala Lumpur campus of Monash university.

'If PAS wins it means the people do not believe Umno's reform programme. It means their sentiments against the ruling party since the March elections are still there,' he said.

'It could also demonstrate that voters do not have confidence in Mr Najib Razak's leadership and believe that Umno is not capable of any reform.' -- AFP