CANBERRA, Aug 23 (Reuters) - Australia's third political force was in disarray on Friday as it struggled to bridge potentially fatal rifts over the party's leadership and direction that could boost the government's muscle in parliament.

After months of bitter infighting and poor opinion polls, Australian Democrats leader Natasha Stott Despoja resigned on Wednesday after four of the party's seven parliamentarians ganged up against her.

But rather than resolve the divisions within the party, the leadership shift sparked more tension when the party's national executive late on Thursday shunned deputy leader Aden Ridgeway to appoint Brian Greig, 36, a Stott Despoja ally, as interim leader.

Political rivals were closely watching the turmoil as any split could change the balance of power in parliament's upper house Senate where the conservative government is in a minority.

Any splintering could give Prime Minister John Howard more avenues to negotiate the four extra votes needed to pass disputed legislation, such as selling the state's 50.1 percent of telecoms giant Telstra Corp or easing media ownership laws.

Greig's appointment as interim head until the party's members across Australia elect a new leader in October was attacked on Friday by some of the "gang of four" that opposed Stott Despoja.

"I am very sad, embarrassed by what has happened overnight," John Cherry, an ally of Ridgeway, told Australia television.

"We face another eight weeks of division and embarrassment and hopefully at the end of that we will have a ballot that gets everything back together again."

Cherry said he expected Greig, who is best known as a gay rights campaigner, to try to shift the party to the left.
"That is something that will again test unity in coming weeks as well," Cherry said.

LEADERSHIP UNCLEAR

It remained unclear on Friday which of the Democrats' seven senators would run for the permanent leadership.

Greig was first to put his hat in the ring and another Stott Despoja ally, Andrew Bartlett, said he would consider it.

But in the other camp, Ridgeway, the only Aborigine in the national parliament, said he would not decide until next week after being passed over on Thursday.

"I think the national executive is out of sync," Ridgeway told reporters when asked about Greig's appointment.

"But what's most important at this time is that the party doesn't need to further rip itself apart."

The conservative government and main opposition Labor party were highly critical of the Democrats' public squabbling which has driven their ratings in opinion polls down to three-four percent from 5.4 percent at an election last November.

"They are a rabble...the community is sick of the infighting going on in the Democrats," said Labor leader Simon Crean.

Howard said the Democrats' 17-member national executive appeared to have deliberately humiliated their parliamentary party by choosing Greig as interim leader.

But he said he would make no judgment on whether that would make the Democrats easier to deal with.

"They are obviously going through a great deal of turmoil. Will they be easier to deal with - not necessarily so," Howard told Melbourne radio 3AW. REUTERS

(NAMPA/REUTERS)