* Decision leaves out Mahathir and Anwar
* They had just reformed their alliance
* Former ruling party UMNO backed Muhyiddin

Malaysia's 94-year-old Mahathir Mohamad lost out in the battle to become prime minister on Saturday as the king named former interior minister Muhyiddin Yassin after a week of political turmoil sparked by Mahathir's resignation.

The decision could again reshape politics in the Southeast Asian country less than two years after an alliance of Mahathir, and old rival Anwar Ibrahim, 72, swept out the former ruling party that had been tarnished by corruption scandals.

That former ruling party of six decades, the United Malays National Organisation (UMNO), was among those that had rallied in support of Muhyiddin, along with the Islamist party PAS.

Although Mahathir and Anwar announced on Saturday that they had joined hands again, the palace said in a statement the king made his decision on the basis that Muhyiddin, 72, possibly had the support of a majority in parliament.

‘His majesty has decreed that the process of appointing a prime minister cannot be delayed,’ it added. ‘This is the best decision for all.’

Muhyiddin, who will be sworn in on Sunday, urged all Malaysians to accept the palace's decision.

His position could still depend on being able to win a confidence vote in parliament, as Anwar said his coalition had now secured the support of 114 lawmakers, enough for a majority in the 222-member lower house of parliament.

Angered by the decision on Muhyiddin, around 200 people gathered in central Kuala Lumpur despite police warnings that the protest was illegal. Officers, however, stood on the sidelines without intervening.

‘We’re really angry,’ said 23-year-old protester Atul Rabiatu. ‘UMNO-PAS is corrupt, it’s like going back to the old government and we don’t want that.’

One placard read: ‘Traitor to the people, Traitor to the country, NotMyPM’.

Nearby, a balloon seller said the new prime minister had been named by the king and should be given a chance. He did not want to give his name.

UMNO SPRINGS BACK

Muhyiddin is from Mahathir's Bersatu party, but had shown himself ready to work with UMNO - from which he had been sacked in 2016 after questioning former prime minister Najib Razak's handling of the 1MDB corruption scandal.

Najib is now on trial on corruption charges.

UMNO's fortunes have risen since its 2018 defeat, with Mahathir and Anwar's Pakatan coalition losing five by-elections in the face of criticism from some Malay voters that it should do more to favour the biggest ethnic group in the country of 32 million.

UMNO, which Mahathir led from 1981 to 2003 during a previous stint as prime minister, supports Malay nationalism.

‘I think Muhyiddin would lead a more overtly pro-ethnic Malay government characterised by social division, economic nationalism, and possibly less fiscal restraint,’ said Peter Mumford, head of Southeast Asia coverage at risk consultancy Eurasia.

The latest crisis was triggered by a tussle for power between Mahathir and Anwar that has shaped Malaysian politics for two decades. Mahathir had promised to hand power to Anwar after the 2018 election, but no date had been set.

After resigning last Monday, Mahathir had sought to form a national unity government that would have given him greater powers, but he won little public support while Anwar rejected the plan and put himself forward for the premiership.

Anwar was Mahathir's deputy and a rising political star when Mahathir was prime minister the first time, but they fell out over how to tackle the Asian financial crisis.

Anwar was arrested and jailed in the late 1990s for sodomy and corruption, charges he says were politically motivated.

As well as personal relationships, politics in Malaysia is shaped by a tangle of ethnic, religious and regional interests. Malaysia is more than half ethnic Malay, but has large ethnic Chinese, Indian and other minorities.