By Margarita Antidze

TBILISI (Reuters) - Georgian President Mikheil Saakashvili's party appeared headed for victory on Monday in municipal polls, in the first electoral test since he led the country to defeat in a war with neighboring Russia.

Europe's top election watchdog, the Organization for Security and Cooperation in Europe (OSCE), said Sunday's election marked "evident progress toward meeting international standards but significant shortcomings remain to be addressed."

With returns from more than 51 percent of the precincts counted in a slew of local elections, Saakashvili's ruling United National Movement had 62.8 percent of the vote, the Central Election Commission said.

In the capital Tbilisi, where almost 99 percent of the precincts were counted, incumbent ruling party mayor Gigi Ugulava was headed for re-election with 55.2 percent of vote, the commission said on its website.

The results will be a boost for Saakashvili, who weathered persistent protests last year after the humiliating five-day war with Georgia's Soviet-era overlord Russia in August 2008.

The opposition includes many former Saakashvili allies, but is fragmented and has struggled to capitalize on public disillusionment with the 2008 war and economic woes.

The results also showed that opposition parties, whose leaders have held exploratory talks with Russian Prime Minister Vladimir Putin, do not enjoy strong support nationwide.

Irakly Alasania, an opposition leader who challenged Ugulava for Tbilisi mayor, said he did not trust the exit poll results, but admitted defeat.

"Despite serious shortcomings in the pre-election period, elections in Tbilisi can be announced as valid," he told reporters. "I respect the free choice of every single citizen who supported my opponent."

Alasania finished second in the mayoral race, with just under 20 percent, the Central Election Commission said.

The first-ever direct vote for mayor in Tbilisi, home to more than a quarter of Georgia's 4.5 million people, was seen by analysts as a test for potential successors to Saakashvili, who is due to step down in 2013 after a decade in power.

"PROGRESS AND SHORTCOMINGS"

OSCE monitors said the elections presented a "mixed picture" with serious progress in comparison with the previous polls in Georgia, but also with irregularities like ballot box stuffing and procedural violations during the vote count.

"I would warn against questioning the legitimacy of the whole electoral process based on these shortcomings," Peter Semneby, the European Union's special representative for the South Caucasus, told Reuters.

Opposition parties said the elections were marred by problems with voter lists, pressure on observers and illegal campaigning by the ruling party. The election commission said no major irregularities had been registered.

"We will pressure the government from the street," Zviad Dzidziguri, an opposition leader and a mayoral candidate, told a news conference.

But analysts said they did not expect serious disturbances even from most radical opposition parties, which say that the vote was rigged and threaten to take people to the street.

Some opposition leaders have called for closer ties with Moscow, which banned imports of Georgian wine and mineral water, cut transport links and recognised Georgia's breakaway Abkhazia and South Ossetia regions as independent states after the war.

But an opposition alliance led by figures like Dzidziguri and ex-premier Zurab Nogaideli, who has recently met with the Russian Prime Minister Vladimir Putin, had some 7-8 percent of the votes, the election commission said.

Saakashvili says he has created a model democracy in a region dominated by rigged polls and long-serving authoritarian leaders. Critics accuse him of monopolizing power, marginalising the opposition and manipulating the media.

The United States and European Union are keen to see stability in the volatile South Caucasus, a transit route for oil and gas to Europe.

(Editing by Jon Boyle)

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