Spain's ruling Socialists have been punished for the sinking economy by defeat in an election in the northwestern region of Galica.

And although the Socialists seized victory in another regional poll in the Basque Country at the expense of Basque nationalists, this could actually weaken Prime Minister Jose Luis Rodriguez Zapatero in the national parliament.

The conservative Popular Party took a majority of seats in the Galician parliament, displacing a Socialist-led coalition, in Sunday's elections.

It was the Socialists' first significant electoral defeat since Zapatero became leader in 2000.

Spain's rapid slide into recession has seen unemployment nearly doubling to 14 percent, car sales halving and house prices falling.

"Those in government usually pay the price for a crisis," said Anton Losada, political science professor at the University of Santiago de Compostela in Galicia.

While the Socialist loss in Galicia seemed closely linked to the deteriorating economy, they won in the troubled Basque Country in northeastern Spain with promises to heal the wounds left by extreme Basque nationalists and ETA rebels, whose political allies were banned from the election.

The Socialists ended an unbroken string of governments by Basque nationalists since 1980 and were on the verge of forming a governing coalition on Monday.

But Zapatero now runs the risk of losing the support of an angry Basque Nationalist Party (PNV) in the national parliament. Without a clear majority, the Socialists rely on smaller parties including the PNV to pass legislation.

"The Socialist government could end up practically without any stable allies in the lower house of parliament, and it will be forced to handle the economic crisis from a very precarious position," wrote Barcelona newspaper La Vanguardia.

The PNV, which has encouraged the use of the Basque language but failed in an attempt to hold a referendum on the region's ties with the rest of Spain, warned Zapatero not to try to form a regional coalition at its expense.

FOLLOW THE CATALAN ROAD

National Senator Inaki Anasagasti said his party could follow the example of Catalan nationalists who say they only support laws that favour their region.

"We could do say something similar. Will Zapatero take this step just before Spain takes over the presidency of the European Union?" said Anasagasti, referring to Spain's six months at the head of Europe from January.

So far, the Socialists have largely held their lead in national opinion polls over the PP despite the recession, something analysts ascribed to divisions within the opposition party, which has been hit by corruption probes.

But Zapatero faces a difficult political balancing act as unemployment rises to keep his promise to unions not to cut social benefits while the clamour increases from businesses to make it cheaper to hire and fire.

The Galician election was a godsend to PP leader Mariano Rajoy, whose leadership had been in doubt after two months in which his party was rocked by corruption probes. A Galician by birth, Rajoy had campaigned hard in his native province.

Former regional premier Emilio Perez Tourino resigned as the head of Galicia's Socialist party on Monday, saying a new political chapter needed to begin.

"This is a magnificent result for Rajoy. It is going to shut up many (of his critics) and put wind in his sails," wrote journalist Antonio Perez Henares on his blog.

Former regional premier Emilio Perez Tourino resigned as the head of Galicia's Socialist party on Monday, saying a new political chapter needed to begin.

The likely ejection of the Basque Nationalist Party from power could also have the effect of calming the debate over devolving power to the regions that has dominated much of Spanish politics in recent years, given that Spain's other large nationalist party, Catalonia's CiU, is also in opposition.