Morocco's moderate Islamist PJD party is on course to win a parliamentary election, partial results showed Saturday, in what would be the second victory for Islamists in the region in the wake of the Arab Spring uprisings.

Incomplete results from Friday's vote indicate that PJD will lead a coalition government in partnership with the secularist party of the outgoing prime minister and two other groups.

Tunisia, birthplace of the Arab Spring, sent ripples through the Middle East last month when a moderate Islamist movement won the country's first democratic election.

Morocco has not had a revolution of the kind seen elsewhere in the region, with its ruler, King Mohammed, still firmly in charge. But it has witnessed some protests inspired by Arab uprisings, mostly to demand fewer direct powers for the monarchy and an end to corruption. In response, the king has introduced limited reforms.

Ali Anozla, editor of the independent Lakome.com news portal, said the monarchy emerges as the main winner of the election. It now has a lot of time to hold back real reform.

PJD should hold the biggest number of portfolios in the next government. But how will it be able to govern when the palace holds sweeping prerogatives? he said.

The party has said it will promote Islamic finance though it will steer clear of imposing a strict moral code on society. The party, whose deceased founder was a physician of King Mohammed's grandfather, is loyal to the monarchy and backs its role as the supreme religious authority in the country.

STRONG LEAD

Announcing the partial count from Friday's election, Interior Minister Taib Cherkaoui told a news conference the PJD was on course to be the biggest contingent in parliament.

With results known for 288 seats in the 395-seat parliament, the PJD had 80 seats, said Cherkaoui, whose ministry organised the election. The Istiqlal party, headed by outgoing prime minister Abbas Al Fassi, was in second place with 45 seats, he said.

Asked if his party was willing to form a coalition with the PJD, Al Fassi told reporters: Yes, yes. The PJD's victory is a victory for democracy.

The partial count gives the PJD, Istiqlal and two smaller parties -- which said before the election they would govern as a coalition if they won -- a total of 170 seats in parliament, just short of a majority.

Abdelali Hami-Eddine, a member of PJD's General Secretariat, told Reuters his party was on course to win at least 105 seats.

Their rivals, a grouping of eight liberal parties with close ties to the royal palace, lagged behind with about 112 seats, according to the partial vote.

PJD's strong showing came on the back of promises for greater democracy, less corruption and to tackle acute social inequalities. Youth unemployment is at 31 percent and nearly a quarter of the 33 million population live in severe poverty.

This is a huge responsibility considering major challenges we have to face and the difficult context. The key challenge is to ensure a smooth transition and meet the demands of those who protested, said Lahcen Daodi, PJD's deputy leader.

PJD plans to push for a tax reform to spare the state additional borrowings, said Daodi. We want value-added-tax on luxury products, we want to reform the income tax system and introduce taxes on owners of unoccupied property. It should help us boost consumption and create more jobs.

TEMPLATE FOR ARAB MONARCHIES

Under new rules introduced earlier this year as part of a package of constitutional reforms backed by the king, the prime minister will be drawn from the biggest party in parliament.

Morocco's election is being closely watched by other Arab monarchies for clues on how to respond to the Arab Spring without relinquishing their hold on power.

Rabat says it can serve as a template for a gradual approach to reform, instead of the convulsions seen in countries like Libya and Syria.

Since his enthronement in 1999, King Mohammed has won international praise for his effort to repair a dark legacy of human rights abuses under the 38-year rule of his father King Hassan. But the reform drive of his earlier years in power has lost momentum in the last few years.

When demonstrations inspired by the Arab Spring flared in February, he revived the reform process with constitutional amendments that took the wind out of the protest movement.

He ceded some of his powers to elected officials, while keeping the final say on issues of defence, national security and religion.

But there remains a vocal minority who say his reforms are not enough. Thousands of people joined protests in several cities last weekend to back calls for a boycott of the election. Fresh protests are planned on November 27 and December 4.

(Writing by Christian Lowe and Souhail Karam; Editing by Rosalind Russell)