Disagreement over a second term for Iraqi Prime Minister Nuri al-Maliki is snarling merger talks between his coalition and a fellow Shi'ite bloc, sources close to the talks said on Tuesday.

Maliki's State of Law (SOL) coalition is negotiating a possible union with the Iraqi National Alliance (INA), which includes anti-American cleric Moqtada al-Sadr, to form the largest bloc in Iraq's next parliament. The Sadrists' strong election showing makes Sadr a potential kingmaker.

An alliance between the two major Shi'ite parties could push former Prime Minister Iyad Allawi's Iraqiya coalition, the top vote-getter in Iraq's March 7 election, to the sidelines.

Sadrist sources have said Maliki, who launched a crackdown on Sadr's Mehdi Army militia in 2008, cannot be the merged bloc's nominee for prime minister.

"There is a big worry among us because SOL is insisting on nominating Maliki as prime minister," said an INA candidate who is close to the negotiations and asked not to be named.

The Iraqiya bloc headed by the secularist Allawi took 91 seats in the election to 89 for Maliki's second-placed State of Law.

The close race promised weeks of difficult and potentially divisive talks to form a government following a vote Iraqis hoped would stabilise their country after years of war.

Iraq's minority Sunnis were marginalised when the Shi'ite majority rose to power after the 2003 U.S. invasion.

"They insist on picking the next prime minister according to the results of a vote. This is unacceptable because they have 89 votes and their candidate will win even if they nominate a toy," the INA source said.

SOL officials said they had shown flexibility on the issue of Maliki but he was still their only candidate.

A merger of State of Law and INA would take the two blocs close to the 163 seats needed to form a government.

Maliki made concessions to the Sadrists in recent days, including an offer to release their detainees in Iraqi and American jails.

Reuters