Ruling coalition Barisan Nasional passed its first popularity test since March general elections by increasing its majority in a weekend by-election which confirmed the decline of Islamic fundamentalists.

Prime Minister Abdullah Ahmad Badawi's Umno retained the Kuala Berang state assembly seat in the northeastern state of Terengganu on Saturday by a margin of 2,059 votes over Islamic party PAS - up from 1,645 in March.

The vote showed the PAS's aim of turning multicultural Malaysia into a theocratic state under Islamic rule had caused fear among both Muslims and non-Muslims, said P Ramasamy, political scientist with the Universiti Kebangsaan Malaysia.

"PAS must do some soul-searching if it intends to make a political comeback. It's a very static party. It has to change," he told AFP .

"PAS has to be aware of the other races in Malaysia, the non-Muslims. They must move away from the Islamic state and embrace a more pluralistic and philosophical outlook," he said.

Ethnic Chinese and Indiains - mostly Buddhists, Hindus and Christians - make up more than a third of the population of 25 million.

PAS made strong gains in 1999 general elections but its fortunes reversed sharply this year as it lost power in Terrenganu and was thumped by the coalition in the race for the federal parliament.

The party only managed to retain control in its northern stronghold Kelantan state with the slimmest of majorities, giving it power in just one of Malaysia's 13 states.

Stinging blow

Terrenganu, in the Muslim Malay heartland, fell to a tide of support for Abdullah's pledge of "modern and progressive" Islamic governance under a secular constitution.

The vote was a huge blow to the party, which wants to impose Islamic law in Malaysia, including punishments such as stoning to death and amputations, and believed it was riding on a wave of resurgent Islam.

Ahead of the by-election, PAS president Abdul Hadi Awang accused the United States of supporting Abdullah's ruling coalition, which is led by Muslims but includes parties representing non-Islamic ethnic minorities.

Abdul Hadi said the United States was using its global anti-terror war as a cover to paralyze the rise of Islam, vowing PAS would not compromise its goal of changing Malaysia's secular constitution and establishing Islamic rule if it came to power.

After the vote, he blamed defeat on "a government machinery which had used all its resources to commit election irregularities and money politics."

But Abdul Hadi found himself on the receiving end of stinging criticism from his own party members at PAS's annual congress, which was held over the weekend in neighbouring Kelantan state.

Some of the 1,000 delegates from the 800,000-member party said the election results showed voters felt uneasy with the party's policies and the leaders needed to modernise their outlook.