Facing a bigger and bolder opposition swept into parliament by voters frustrated with Kuwait's dysfunctional politics, the country's rulers are under pressure to appoint a cabinet that can survive long enough to deliver much-needed reforms.

Opposition candidates won a solid majority in the 50-seat assembly last week, tapping into a surge of anger over the unpopular former prime minister and corruption, which drew rare protests onto the streets last year.

Kuwait's new prime minister Sheikh Jaber al-Mubarak al-Sabah, as always handpicked by the country's emir, will now appoint a new cabinet before parliament holds its first session, due within two weeks.

The make-up of that cabinet may determine, at least in part, how successful the next government will be in unfreezing the political gridlock that has paralysed the tiny Gulf state.

You need now a magic formula to appease everybody and to make sure that this parliament will not from day one start bickering and fighting with the cabinet, said Abdullah al-Shayji, chairman of political science at Kuwait University.

The new line-up will have to make allowances for the shift in power on the ground, which could mean appointing more members of the elected assembly. Under Kuwait's constitution, at least one elected MP must also be given a ministerial position. In the previous administration, a single parliamentarian was selected.

What is more important than the parliament is the formation of the cabinet, said Ghanim al-Najjar, professor of political science at Kuwait University.

Without an enemy, the opposition, which is united by little more than antagonism toward the government given that political parties are banned, could even be forced to join the cabinet at the table instead of challenging it.

However, there are no indications that the opposition is inclined to make concessions given the mandate they have just been given.

Insiders say a feud over which branch of the al-Sabah dynasty gets to rule has exacerbated the situation as warring sheikhs back different MPs to weaken rivals.

Historically, the title of crown prince has passed back and forth between the Salem and Jaber branches of the family. But the current Jaber emir, Sheikh Sabah al-Ahmad al-Sabah, ascended the throne in 2006 after the previous infirm emir from the Salem side reigned for just nine days, which means the Jaber line has effectively held on to the position since 1977.

There has to be a ceasefire among the ruling family in order for this cabinet to function properly outside the wheeling and dealing and pulling and shoving, Shayji said.

So far, the track record is not encouraging.

Seven cabinets have come and gone in the past five years, usually to dodge embarrassing questioning in parliament.

Parliamentarians have sought to grill ministers over everything from squandering public funds to allowing Star Academy - the Arab talent show equivalent of the X-Factor - to be broadcast on Kuwaiti TV screens.

It (the result) was expected because of the bi-polar society we've been living in with the previous parliament, said Jassim al-Qamis, who managed the re-election campaign for liberal candidate Aseel al-Awadhi.

Many who lost ground in the vote, such as liberal and Shi'ite Muslim candidates, were seen by voters as too lenient on the outgoing Prime Minister Sheikh Nasser al-Mohammed al-Sabah, whom they accused of graft. Islamist candidates made gains due to their aggressive stance against Sheikh Nasser rather than religious fervor.

LOST OPPORTUNITY

The deadlock has turned the U.S. ally from Gulf trailblazer to laggard, holding up reforms and pushing the level of foreign direct investment in the country to the lowest in the region.

In the past decade, Kuwait attracted just $1.5 billion (944.1 million pounds) in foreign investment, or a mere 0.5 percent of total Gulf inflows, while impoverished Yemen attracted $3.5 billion.

Kuwait's economy grew by 5.7 percent in 2011, compared with 6.5 percent for Saudi Arabia and 18.75 percent in Qatar, according to IMF estimates. Kuwait's investment as a percentage of GDP has consistently trailed Gulf peers since the mid-nineties.

Although the government runs a budget surplus of about 24 percent - by far the highest in the Gulf, according to the International Monetary Fund - the extra money has yet to translate into better infrastructure.

Farouk Soussa, Middle East chief economist at Citi, warned that Kuwait might enter a period of more messy politics where policy gridlock could continue to deter investment and block big economic development projects.

A senior private banker told Reuters he received a call from an important client in Kuwait asking him to invest more of his funds outside the country after hearing the election result.

In 2008, Kuwait cancelled a $17.4 billion proposed joint venture with Dow Chemical after parliament challenged the cabinet and threatened to subject the prime minister to questioning over the deal, which would have involved a cash payment of $7.5 billion just as the global economy was reeling from the first wave of the global financial crisis.

The joint venture was aimed at taking advantage of Kuwait's oil wealth to produce petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate, used in products ranging from plastic bottles and compact disks to computers and agricultural compounds, and would have created thousands of jobs.

The same year, liberal parliamentarians successfully engineered the collapse of a $15 billion refinery deal.

No major deals have been proposed since.

Political reforms demanded by opposition politicians and youth groups include an independent judiciary and an end to the ban on political parties, and that the prime minister be elected.

This week, ratings agency Fitch warned that ongoing friction within Kuwait's government would continue to weigh on reforms and hinder political effectiveness.

The elite squabble and we get unemployment, frightening price increases and disillusion, said Kuwaiti citizen Adnan Abdullah, walking past the stock exchange. These problems will not be solved in the near or mid-term.

(Additional reporting by Mirna Sleiman; Editing by Sonya Hepinstall)