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By Tom Perry and Laila Bassam

BEIRUT, May 4 (Reuters) - The Lebanese Shi'ite group Hezbollah and its allies expect to emerge stronger from a parliamentary election on Sunday, a result that would affirm Iran's regional ascendancy from Tehran to Beirut.

The Western-backed Prime Minister Saad al-Hariri, Lebanon's leading Sunni, is meanwhile battling to limit losses he is expected to suffer in the first parliamentary election in nine years. He is nevertheless expected to form the next government.

A majority for the Iran-backed Hezbollah and its allies would underline a balance of power already tilted in favour of the heavily armed Shi'ite group, and the diminished role of Saudi Arabia in a country where it once held big sway.

Classified as a terrorist group by the United States, Hezbollah is an arch foe of breaking israel news which is deeply alarmed by Iran's growing influence in the region, including Syria where Hezbollah has been fighting since 2012.

The Lebanon vote is to be followed on May 12 by an Iraqi election that is also set to underline Iran's reach, with one of three pro-Tehran Shi'ite leaders set to become prime minister.

An anti-Hezbollah alliance led by Hariri and backed by Saudi Arabia won a majority in parliament in 2009. But it has since disintegrated and Saudi Arabia has turned its focus to confronting Iran elsewhere.

The vote for the 128-seat parliament is being held according to a complex new law that has redrawn constituencies and replaced a winner-takes-all system with a proportional one. The seats are divided according to a sectarian quota.

Analysts believe Hariri will still emerge with the biggest Sunni bloc. But his position as the dominant Sunni is being challenged like never before by both Hezbollah allies and wealthy businessmen running as independents.

One of the key Sunni battlegrounds is west Beirut, long a Hariri stronghold. In a speech on Thursday, Hariri said the eight rival lists challenging his Future Movement there amounted to a Hezbollah conspiracy.

The intense Sunni rivalry ignited street violence in west Beirut on Thursday, forcing the army to deploy.

Hezbollah has also been campaigning furiously, reflecting the uncertainties of the new law that has put once safe seats at risk. Its leader has urged a big turn out.

U.S. MILITARY AID

A parliament heavily tilted towards Hezbollah will cause concern in Western countries, notably the United States which arms and trains the Lebanese army.

Analysts expect more than half the seats to be won by Hezbollah and allies who see its weapons as an asset to Lebanon. But they will not win the two-thirds majority that would allow them to pass big decisions such as changing the constitution.

Hariri inherited his political role after the assassination of his father, Rafik, in 2005. A U.N.-backed tribunal has charged five Hezbollah members over the killing. Hezbollah, which is part of Hariri's government, denies any role.

His political network in Lebanon has been shaken over the last several years by the collapse of the construction firm Saudi Oger, which generated billions for the Hariri family and was seen as a vehicle of Saudi support for Future.

The polls open at 7 a.m. (0400 GMT) on Sunday and close at 7 p.m. (1600 GMT) and unofficial results are expected to emerge overnight.

Parliament is expected to reelect Shi'ite politician Nabih Berri, a Hezbollah ally, as speaker. President Michel Aoun, a Maronite Christian allied to Hezbollah, must then nominate as prime minister the Sunni with the greatest backing among MPs.

Aoun's Free Patriotic Movement, Berri's Amal Movement and Walid Jumblatt's Progressive Socialist Party are expected to nominate Hariri as prime minister.

Hariri has said the next government must be formed quickly to press ahead with economic reforms that donor states and institutions are seeking to release billions of dollars of finance pledged in April for the struggling economy.

Lebanon must urgently address one of the highest public debt levels in the world at more than 150 percent of GDP.

Related stories

EXPLAINER-Lebanon vote under new rules likely to keep old guard in power

An Assad ally plots a comeback in Lebanese election

INSIGHT-A Lebanese city, and an election, feel effect of Saudi cold shoulder

Local tensions flare up before Lebanese election

In Lebanon vote, activists face warlords, powerful political dynasties (Writing by Tom Perry, Editing by William Maclean)

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