(Repeats to remove extra word in paragraph 19)
* Lama's decision widely expected
* Devolving power seen as modernising exiled Tibet movement
* Exiled parliament still needs to formally approve move
(Adds details, China reaction)
By Abhishek Madhukar
DHARAMSALA, India, March 10 The Dalai Lama said on Thursday he would step down as Tibet's political leader, a move seen as transforming the government-in-exile into a more assertive and democratic body in the face of Chinese pressure.
By devolving his powers, the Dalai Lama would give the prime minister greater clout as the region seeks autonomy from China. Tibetans will vote for a new prime minister this month, with the elections seen as ushering in a generation of younger, secular leaders and strengthening the movement's global standing.
"As early as the 1960s, I have repeatedly stressed that Tibetans need a leader, elected freely by the Tibetan people, to whom I can devolve power," the Dalai Lama said in his annual speech marking 52 years since he fled Tibet after a failed uprising against the Chinese.
"Now, we have clearly reached the time to put this into effect," he told a subdued crowd of 2,000 monks and Tibetans.
The Dalai Lama, whose announcement was widely expected, will remain Tibet's spiritual leader and continue to advocate "meaningful autonomy" for Tibet from the northern Indian town of Dharamsala, where he has lived in exile since 1959.
The prime minister of the Tibetan government-in-exile, Samdhong Rinpoche, told reporters on Thursday it was not clear if the parliament would accept the Dalai Lama's resignation and warned of a constitutional deadlock.
China, which regards the Dalai Lama as a dangerous separatist responsible for stirring unrest in Tibet, denounced his resignation as a "trick".
"The Dalai Lama uses religion as a disguise and he is a political exile who has been carrying out separatist activities for a long time," said Foreign Ministry spokeswoman Jiang Yu.
"For years he has been expressing his intention to retire. We think these are tricks to deceive the international community."
UNREST IN TIBET
By divesting his political powers, Dalai, 75, Lama has made it more difficult for China to influence the course of the independence movement after his death, analysts say.
The Chinese government says it has to approve all reincarnations of living Buddhas, or senior religious figures in Tibetan Buddhism. It also says China has to sign off on the choosing of the next Dalai Lama.
Tibetans fear that China will use the thorny issue of the Dalai Lama's succession to split the movement, with one new Lama named by the exiles and one by China after his death. A new Dalai Lama would need decades before they could lead the movement.
On Monday, China insisted the Dalai Lama had no right to choose his successor, but must follow the historical and religious tradition of reincarnation.
"There is a lot of talk that the Chinese are waiting for the Dalai Lama to die, thinking that without him the movement will stall," said Kanwal Sibal, former Indian foreign secretary.
"By democratising the movement, he is trying to steer Tibet's leadership in a direction that will make it difficult for the Chinese to dictate the dialogue."
Some Tibetans fear that a reduced role for the Dalai Lama, who won the Nobel Peace prize in 1989, could diminish the larger independence movement. The charismatic and media-savvy leader balances his spiritual duties with courting high-profile support from Hollywood superstars.
But analysts say he is still likely to wield a large amount of power over the parliament-in-exile due to his global renown and the devotion of ordinary Tibetans.
The three main contenders for the prime minister's post, to be contested later in March, are all secular, not monks like the incumbent, adding to a sense of modernisation of the exiled movement.
The favourite is Lobsang Sangay, a Fulbright scholar with a doctorate in law from Harvard. In 2007, he was selected as one of the twenty-four Young Leaders of Asia by the Asia Society.
China has ruled Tibet with an iron fist since Communist troops marched in 1950. It says its rule has bought much needed development to a poor and backward region.
Rights groups accuse China of failing to respect Tibet's unique religion and culture and of suppressing its people.
By devolving his political leadership, it could also make it easier for the Dalai Lama to travel and be hosted by leaders in Western capitals, where often there is reluctance to meet amid worries it could upset diplomatic and trade ties with Beijing.
Tibetan protests led by Buddhist monks against Chinese rule in March 2008 gave way to torrid violence, with rioters torching shops and turning on residents, especially Han Chinese, who many Tibetans see as intruders threatening their culture.
At least 19 people died in the unrest, which sparked waves of protests across Tibetan areas. Pro-Tibet groups overseas say more than 200 people were killed in a subsequent crackdown. (Additional reporting by Henry Foy in New Delhi and Michael Martina in Beijing)
(Writing by Alistair Scrutton, Editing by Miral Fahmy)