By Jana Mlcochova and Robert Muller
PRAGUE (Reuters) - Czech Social Democrats won a slim victory in a parliamentary election on Saturday but faced a tough task forming a government after a wave of voter anger over sleaze and budget cuts propelled new protest parties into parliament.
With most results in, Bohuslav Sobotka's center-left, pro-European Social Democrats had 21 percent of the vote, well short of the 30 percent they had targeted and in need of more than one coalition partner to build a stable government.
In an outcome echoing the success of anti-establishment parties elsewhere in Europe such as Beppe Grillo's 5-Star movement in Italy, the big winner was an anti-graft movement ANO (Yes) led by Slovak-born billionaire businessman Andrej Babis.
ANO, launched just two years ago and languishing in opinion polls until late in the election campaign, took second place with nearly 19 percent. The Communists, heirs of the party that lost power in the 1989 "Velvet Revolution", came third.
The election result leaves the central European country of 10.5 million people facing the prospect of protracted political haggling and of another weak and unstable government just as the Czech economy emerges from a lengthy recession.
It also dashes Sobotka's hopes of forming a minority government with the parliamentary support of the Communists because the two parties cannot muster a majority. The Communists, who have not had a share of power since the return of Czech democracy in 1989, won around 15 percent of the vote.
"If the lower house of parliament is fragmented, we will face tough negotiations on forming government," said Sobotka.
"The Social Democrats are prepared to take on this tough negotiation and we will try to form a reasonable, stable cabinet," he said, adding he was ready to talk to all parties except the center-right parties who led the last government.
The previous coalition collapsed in June amid a scandal over illegal surveillance and corruption allegations, forcing an early election. The two parties, the Civic Democrats and Top09, won 7.5 percent and 11.5 percent respectively on Saturday.
A Social Democrat government would be expected to slap new taxes on banks, utilities and high earners to pay for social programs and help keep the budget deficit below the EU's prescribed level of 3 percent of national output.
Babis, the mercurial owner of more than 200 chemicals and food firms as well as two national newspapers, quickly dampened any hopes that ANO might be ready to help Sobotka.
"I cannot see us supporting the Social Democrats given the program they have," he added.
The presence of seven parties in the new parliament could strengthen the hand of the president, Milos Zeman, who appoints prime ministers and is a long-standing opponent of Sobotka.
But Zeman, himself a former Social Democrat prime minister, also suffered a setback on Saturday when a party of his ardent supporters, including several ministers in a caretaker cabinet now running the country, only won 1.5 percent.
Further complicating matters is Sobotka's refusal to work with the former governing center-right parties.
"Success in the end will force Babis to join the government and take on responsibility, otherwise I don't know who could form the government at all," said Lukas Linek, political analyst at the Czech Academy of Sciences.
Financial markets have largely ignored the election thanks to the Czech Republic's economic stability, underpinned by low public debt and the lowest borrowing costs in emerging Europe.
But the high risk that the coalition government talks may drag on, possibly for months, may rattle investors.
(Additional reporting by Jason Hovet and Michael Kahn; Writing by Jan Lopatka; editing by Gareth Jones)