By Rozanna Latiff and Matthew Tostevin
KUALA LUMPUR (Reuters) - Malaysia's 94-year-old Mahathir Mohamad lost out in a 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.
But Mahathir made clear he would not bow out quietly, saying he would inform the king he had a majority in parliament supporting his return as prime minister.
The king's 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."
Mahathir said he planned to send a letter to the king to inform him that he had the support of a majority in parliament.
"I hope his majesty the king will accept the letter and my explanation," Mahathir said in a statement that gave the 114 names of lawmakers he said supported him from the 222 member parliament.
Members of parliament supporting Mahathir planned a rally before Muhyiddin is sworn in on Sunday.
Muhyiddin urged all Malaysians to accept the palace's decision.
Angered by the decision on Muhyiddin, around 200 people had gathered in central Kuala Lumpur in the evening 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.
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 favor 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 characterized by social division, economic nationalism, and possibly less fiscal restraint," said Peter Mumford of the Eurasia consultancy.
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 when Mahathir was prime minister the first time, but they fell out. 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.
(Additional reporting by Joseph Sipalan, Mei Mei Chu and Liz Lee; Writing by Matthew Tostevin; Editing by Clarence Fernandez, Ed Davies, Andrew Heavens and Alexander Smith)