Indonesia's vice president has been chosen as the leader of the powerful Golkar party, an outcome that could boost support for the country's new government but divide its largest political group.

Yusuf Kalla, a wealthy businessman who stood as running mate to President Susilo Bambang Yudhoyono in September elections, was chosen shortly before dawn at a chaotic party conference on the island of Bali.

He beat incumbent Akbar Tanjung who had threatened to bolster Golkar's position as an opposition party and hamper Yudhoyono's efforts to fix graft and Islamic militancy in the world's largest Muslim-populated nation.

Kalla is expected to steer the party, founded as a political vehicle for ex-dictator Suharto, behind Yudhoyono, strengthening his position in the government and positioning himself to succeed as president in 2009 polls.

There was loud chanting at the hotel in Bali's Nusa Dua resort as results giving Kalla 323 votes to Tanjung's 156 were announced after a long night of wrangling that at one point saw security guards rush in to restore order.

In his acceptance speech, the vice president called for unity, pledging to continue the work of his predecessor.

Tensions have run high over the leadership selection with police called in earlier this week to investigate a suspected poisoning attempt after small traces of arsenic were found in soup prepared for Kalla.

Until now, Golkar's command of a bloc that holds 275 parliamentary seats out of 550 has presented a stumbling block for Yudhoyono, who despite winning a landslide mandate in the presidential polls, has the support of only 233 seats.

The party demonstrated its ability to dig in its heels over the president's policies last month when it generated a showdown over the appointment of senior parliamentary jobs.

With Kalla at the helm, Golkar is expected to fall in line with Yudhoyono as he drives through promised reforms in the hope of attracting the foreign cash needed to shake off lingering effects of Asia's 1998 financial crisis.

"To consolidate the party in any part of Indonesia, we need Yusuf Kalla, because as vice president he can tour the country with government money as we prepare for regional elections," said one delegate from East Java.

But many see the vice president's leadership as a threat to a party he nearly tore apart in the run up to September elections as he defied Golkar rulings to support a rival candidate, dragging many executives with him.

When Golkar's own presidential choice, General Wiranto, was eliminated from an early round of voting, the party urged members to support Yudhoyono's predecessor Megawati Sukarnoputri. Kalla's refusal led to his suspension.

Tanjung, a career politician, had enjoyed strong popularity after rescuing a party seen as a throwback to Suharto's authoritarian rule and rebranding it to avoid a backlash after the dictator's fall from grace in 1998.

Many fear the lack of credible opposition will hurt the democratic progress in Indonesia just as it celebrates a year of universally praised elections. It could also dent the party's popularity.

"We have to distance ourselves from the government, to be able to criticise if necessary," former Golkar chairman Harmoko told AFP. "We will not attract people's attention if we don't criticise. People will only appreciate us if we solve real problems."

In his victory speech, Kalla insisted the party would maintain a healthy distance from Yudhoyono's leadership, to provide "checks and balances". "If the government is wrong, it is important for the party to criticise," he said.