Turkey's opposition strikes blow to Erdogan

-- Opposition victory margin wider than first vote in March

-- Erdogan congratulates Imamoglu after vote

-- Uncertainty over Istanbul election had left markets on edge

Turkey's opposition has dealt President Tayyip Erdogan a stinging blow by winning control of Istanbul in a re-run mayoral election, breaking his aura of invincibility and delivering a message from voters unhappy over his policies.

Ekrem Imamoglu of the Republican People's Party (CHP) secured 54.21% of votes, according to state-owned Anadolu news agency - a far wider victory margin than his narrow win three months ago.

The previous result was annulled after protests from Erdogan's Islamist-rooted AK Party, which said there had been widespread voting irregularities. The decision to re-run the vote was criticised by Western allies and caused uproar among domestic opponents who said Turkey's democracy was under threat.

On Sunday, tens of thousands of Imamoglu supporters celebrated in the streets of Istanbul after the former businessman triumphed over Erdogan's handpicked candidate by almost 800,000 votes.

"In this city today, you have fixed democracy. Thank you Istanbul," Imamoglu told supporters who made heart signs with their hands, in an expression of the inclusive election rhetoric that has been the hallmark of his campaigning.

"We came to embrace everyone," Imamoglu said. "We will build democracy in this city, we will build justice. In this beautiful city, I promise, we will build the future."

The High Electoral Board has yet to announce the formal results, but Erdogan has already congratulated Imamoglu for his victory and Imamoglu's rival, Binali Yildirim, of the ruling AK Party wished him luck as mayor barely two hours after polls closed.

WANING SUPPORT

Erdogan has ruled Turkey since 2003, first as prime minister and then as president, becoming the country's most dominant politician since its founder, Mustafa Kemal Ataturk, nearly a century ago.

His AK Party has strong support among pious and conservative Turks and its stewardship of Turkey's economy through a decade and a half of construction-fuelled growth helped Erdogan win more than a dozen national and local elections.

But economic recession and a financial crisis have eroded that support, and Erdogan's ever-tighter control over government has alarmed some voters.

Turkey's lira tumbled after the decision to annul the March vote and is down 8% this year in part on election jitters. It firmed to 5.72 overnight from Friday's close of 5.8140 but eased back to 5.7750 by 0500 GMT.

Imamoglu won support even in the traditionally pious Istanbul districts, once known as AK Party strongholds, ending the 25-year-long Islamist rule in the country's largest city.

"This re-run (election) was one to put an end to the dictatorship," said Gulcan Demirkaya, a 48-year-old housewife in Istanbul's AKP-leaning Kagithane district. "God willing, I would like to see him as the president in five years' time. The one-man rule should come to an end."

The results are likely to trigger a new chapter in Turkish politics, with the country's top three cities now held by the opposition, and could trigger cracks within Erdogan's AK Party, while bringing the economic troubles more to the centre.

"This is definitely going to have an impact on the future of Turkish politics given the margin of victory. It's alarming sign for the AKP establishment," said Sinan Ulgen, visiting scholar at Carnegie Europe in Brussels and former Turkish diplomat.

Analysts say the loss could set off a Cabinet reshuffle in Ankara and adjustments to foreign policy. It could even trigger a national election earlier than 2023 as scheduled, although the leader of the AKP's nationalist ally played down that prospect.

"Turkey should now return to its real agenda, the election process should close," MHP party leader Devlet Bahceli said. "Talking of an early election would be among the worst things that can be done to our country."

The uncertainty over the fate of Istanbul and potential delays in broader economic reforms have kept financial markets on edge. Threats of sanctions by the United States if Erdogan goes ahead with plans to install Russian missile defences have also weighed on the markets.