• Mahathir sends resignation letter to king
• Two component parties ask him to stay on
• Talks of new coalition with opposition upset PM - Anwar

KUALA LUMPUR: Malaysia's Mahathir Mohamad unexpectedly resigned as prime minister on Monday, leaving the Southeast Asian country in political turmoil but drawing calls from some quarters for the world's oldest leader to return at the head of a new government.

The resignation of Mahathir, 94, breaks apart a coalition with old rival Anwar Ibrahim, 72, that had won a surprise election victory in 2018 and was not part of a pre-election promise that Mahathir would one day cede power to Anwar.

The decision, which Mahathir did not explain, follows surprise talks at the weekend between members of his coalition and the opposition on forming a new government.

But Anwar and people close to Mahathir said he had quit after accusations that he would form some sort of partnership with opposition parties he defeated less than two years ago on an anti-corruption platform.

"He thought that he shouldn't be treated in that manner, to associate him in working with those we believe are blatantly corrupt," Anwar told reporters after meeting Mahathir on Monday morning.

"He made it very clear that in no way would he work with those associated with the previous regime," Anwar said.

But it is unclear if the resignation is end of the road for Mahathir: at least two of the component parties from his coalition called for Mahathir to stay on as prime minister. Some in the opposition have also agreed to support him.

"The field is wide open for him," said Ibrahim Suffian, director of pollster Merdeka. "If he considers coming back as PM, he has the freedom to choose his partners or who he would like to be part of his cabinet."

Mahathir's office said he has sent his letter of resignation to the king and he was later seen arriving at the palace to meet the monarch.

Mahathir, who came out of retirement to run in the 2018 national election, also quit the Bersatu party he had formed shortly before the polls, three sources familiar with the matter said.

'UP FOR GRABS'

Mahathir's resignation capped over 24 hours of speculation over the fate of the coalition after lawmakers from his coalition held meetings on Sunday with the opposition United Malays National Organisation (UMNO) and Islamist party PAS.

It is unclear what the political leaders of the country are planning next or who could form the next government.

Sources say there could be a showdown between Anwar and an alliance between Bersatu President Muhyiddin Yassin and Azmin Ali, who on Monday was sacked from Anwar's party.

Constitutionally, any lawmaker who can command a majority in parliament can stake a claim to form the government. The king has to provide his assent before a prime minister can be sworn in.

If no one has simple majority of 112 lawmakers, fresh elections are an option, a person close to Mahathir's party said.

In public comments today, Anwar did not say if he would stake a claim to form a new government. He said he met the king to express his views and seek the king's advice in the interest of the country.

"Seems like it will be up for grabs now," a second source said about the possibility of who will form the next government. "Who can pull in a majority."

The political turmoil, together with region-wide worries at the spread of the coronavirus, sent Malaysia's currency, bonds and stock market lower.

The ringgit fell 0.8% on the day - its steepest slide in three years - to its lowest level in almost six months.

The main stock market index fell to an eight-year low and bonds fell, forcing yields on 10-year government bonds up 5 basis points, their biggest jump since October.

"It becomes quite hard for Malaysia to bring foreign investors back," Jolynn Kek, head of equity at BOS Wealth Management Malaysia, said, pointing to more political stability and economic growth among its neighbours.

Finance Minister Lim Guan Eng, whose DAP party is the second biggest component of Mahathir's coalition, said "political manipulation" has affected the government's efforts to address the economy.

Lim's party said it would re-nominate Mahathir to be the prime minister.

Mahathir had been scheduled to announce a stimulus package to deal with the virus outbreak on Thursday.