By Tuomas Forsell and Jussi Rosendahl
HELSINKI (Reuters) - Finland's jointly ruling eurosceptic Finns party saw its support tumble in municipal elections on Sunday, a forecast by public broadcaster YLE showed, potentially tipping its own leadership race in favor of a hardline candidate.
With more than 95 percent of votes counted, YLE predicted Finns had won 8.8 percent support, slumping from the 17.7 percent of the vote it won in a 2015 parliamentary election and its 12.3 percent support in 2012 local elections.
The downturn for the second-biggest party in parliament could spell trouble for the three-party government by boosting support in the Finn's leadership race for Jussi Halla-aho, who has said he wants to take the country out of the euro zone and the European Union.
YLE's forecast showed Finance Minister Petteri Orpo's conservative NCP leading the election with 20.7 percent support, followed by the opposition Social Democrats with 19.4 percent and Prime Minister Juha Sipila's Centre party with 17.5 percent.
The small opposition party The Greens also won more support than the Finns.
The Finns party, previously known as True Finns, has in recent years softened its nationalist and anti-EU platform, helping it enter the government but also angering some of its core voters.
"There's no way around it, we took it on the chin... We suffered from the government's austerity policy. Our work for the fatherland took its toll," Foreign Minister Timo Soini who is due in June to step down from the helm of the Finns party, told reporters.
"The party must analyze what it wants, whether it wants to stick to the government policy... I hope it will not become an opposition party that protests everything."
Halla-aho, a member of the European Parliament and an anti-immigration hardliner, is one of two front-runners in the Finns' leadership race along with lawmaker Sampo Terho, a Soini ally.
"The party's support curve has been catastrophic, so they will likely seek to raise their profile in the government," said Markku Jokisipila, a political scientist at the University of Turku.
"This vote definitely plays in the favor of Halla-aho ahead of the June party congress."
(Editing by Hugh Lawson)