By Karol Badohal and Anna Koper
WARSAW (Reuters) -Poland's liberal, pro-EU opposition on Monday looked on track to form the next government after official partial results and exit polls showed the ruling nationalists losing their parliamentary majority in the nation's most pivotal election in decades.
The incumbent Law and Justice (PiS) party has repeatedly clashed with the European Union over the rule of law, media freedom, migration and LGBT rights since it swept to power in 2015. Opposition parties have vowed to mend ties with Brussels and scrap reforms they say have eroded Polish democracy.
A late exit poll by Ipsos published on Monday afternoon gave PiS 36.1% of the vote, which would translate into 196 lawmakers in the 460-seat lower house of parliament.
Opposition parties, led by the former European Council President Donald Tusk's liberal grouping Civic Coalition (KO), were projected to win a combined 249 seats, with the KO seen winning 31.0% of ballots cast.
Official results after 90% of voting districts had been counted put PiS on 36.4%, KO on 29.7% and its ally the centre-right Third Way on 14.5%. Generally more conservative rural areas and small towns report their results faster than large cities where liberal parties are strongest.
Victory for the opposition in a vote seen by analysts as the most significant election for Europe in years could potentially redefine the relationship between Brussels and the largest EU member state in central and eastern Europe.
Polish financial markets surged on the prospect of a government led by Tusk. The blue-chip WIG 20 share index was up 6.2% at 1320 GMT, while the zloty currency was 1.3% firmer.
"The ousting of the nationalists will help to restore damaged relations with the EU," said Lee Hardman, a senior currency analyst at MUFG bank.
"The zloty should continue to strengthen further in the near-term in anticipation of improving relations with the EU that will help to support growth and attract capital inflows."
Tusk has said he would seek to unblock some 110 billion euros of EU funds earmarked for Poland but frozen over rule-of-law concerns.
'WAITING CALMLY'
President Andrzej Duda, a PiS ally, has said he would give the first shot to the winning party. On Monday, Duda urged patience until the full election results were known. "We are waiting calmly, democracy in Poland is stable," he said.
However, with the far-right Confederation seen winning just 6.8%, below expectations, according to the late exit poll, PiS will struggle to forge a new government.
Even though they likely will have a wait before their turn to form a government, Third Way leader Szymon Holownia said late on Monday the opposition parties will begin coalition talks this week, and Tusk is a natural candidate to become a new prime minister,
The leader of the Polish Peasants' Party (PSL), part of Third Way, ruled out joining a PiS-led coalition.
"People who voted for us wanted change, they wanted PiS removed from power," Wladyslaw Kosiniak-Kamysz told private radio RMF FM.
The Organisation for Security and Cooperation in Europe (OSCE), a rights watchdog, said Poland's election had not been entirely free and fair.
"... The ruling party enjoyed clear advantage through its undue influence over the use of state resources and public media," said Pia Kauma, head of the OSCE's Parliamentary Assembly.
Poland's electoral commission put turnout in Sunday's vote at 74%, based on 96% of polling stations, the highest since the fall of communism in 1989, underlining the high stakes of this election. Turnout in the last parliamentary election was 62%.
In an aggressive campaign, PiS had cast the election as a choice between uncontrolled illegal migration under the rule of leaders it said were beholden to foreign interests and a government that would protect Poland's borders and traditions.
However, PiS faced accusations of democratic backsliding and undermining women's rights after the government enforced a near-total abortion ban in 2021.
PiS was also accused of using lucrative positions in state-controlled firms to reward supporters.
"I expect that women will now have more rights, that they will feel safer," said Iga Frackiewicz, 43, a banking administrator.
"I also hope that the nepotism will end, for example in state companies and in other places."