"The quickest and most peaceful way out of the current crisis and to avoid plunging into the unknown, chaos or internal strife... is to rely on the people by holding early elections," said a representative of Sistani, who never appears in public.

The revered 89-year-old cleric urged lawmakers to "form a new government as soon as possible" which should then speedily pave the way for new, free and fair elections, according to his representative, Abdel Mahdi al-Karbalai.

Iraq has been rocked by two months of anti-government protests, the worst wave of unrest since a US-led invasion ended the reign of dictator Saddam Hussein in 2003.

The demonstrators, many of whom came of age after Saddam's death, have condemned the government for being inept, corrupt and beholden to powerful neighbour Iran and demanded the ouster of the entire political class.

About 460 people have been killed and 25,000 wounded in street violence in Baghdad and across the Shiite-majority south.

The latest victim was activist Ali al-Othmi, 26, who was gunned down by masked men on Friday afternoon in the southern city of Nasiriyah, security sources said.

Former premier Adel Abdel Mahdi quit in November in the face of the mass protests and after a sharp spike in deadly violence, and the deeply divided parliament has since struggled to find a replacement.

Sistani, who is said to have made and undone all Iraqi prime ministers since 2003, has been keeping his distance from the politicians who have been booed by protesters since the start of October.

- Inner circle -

Parliament had been due to propose a new candidate by the end of Thursday.

But with deep divisions remaining, authorities agreed to push the deadline back to Sunday, a source within the presidency said.

In Baghdad's Tahrir Square, hub of the protest movement, demonstrators have put up large-format portraits of the official candidates with their faces crossed out in red.

"They can keep pushing the deadline back by one day, two days, even a year -- we're still on the streets. It hurts them more than it hurts us," said Ghassan, a 35-year-old protester.

Talks have continued between parliamentary group leaders, party bosses and Iranian and UN envoys.

Outgoing higher education minister Qusay al-Suhail has for several weeks been presented by officials as the candidate of Iran.

A former key member of Shiite cleric Moqtada Sadr's movement, Suhail rejoined the State of Law Alliance of former premier Nuri al-Maliki, who is close to Iran and an enemy of Sadr.

Other names are circulating, all of them former ministers or officials from the inner circle who are likely to be rejected on principle in the streets.

- 'Last minute' -

Once a name is proposed, lawmakers can submit it to President Barham Saleh for a vote in the 329-member parliament.

If that person fails to gain a majority, Saleh has the right to put forward his own candidate.

If parliament rejects that candidate, the constitution stipulates that Saleh would become the de facto head of the outgoing cabinet for 15 days.

Saleh is betting on "a last-minute decision," an official told AFP, on condition of anonymity.

If no party's candidate obtains a majority, the official said, the president intends to propose intelligence chief Mustafa al-Kazimi, who is seen to have US backing.

Angered by chronic youth unemployment, the young demonstrators have rallied against the entire political establishment and its institutions, especially the parliament headed by speaker Mohammed al-Halbusi.

On Friday they chanted: "Barham Saleh, Mohammed al-Halbusi, your turn has come" to resign.