Dili – East Timor's president was scheduled to announce the formation of the next government on Wednesday as former Prime Minister Mari Alkatiri declared he was in the running for his old job.

There are fears the decision on the next prime minister and other top government posts could spark fresh violence in the country just over a year after Alkatiri was ousted following bloodshed that brought the nation close to civil war.

President Jose Ramos-Horta is set to use his constitutional right to choose the next government because June parliamentary elections failed to produce a clear winner and the parties have been unable to agree among themselves on who should govern.

Alkatiri – who has many bitter enemies in East Timor's ruling elite – had said he would not be running for premier, but announced Wednesday he had agreed to be candidate of the Fretilin party, a move likely to increase political tension.

"Fretilin leaders at a meeting yesterday decided to appoint me as the candidate for the prime minister post and I am ready to be back," he told reporters. Fretilin insists it has the right to form a government because it won the most seats in June, even though it fell far short of a majority.

A coalition of parties headed by Xanana Gusmao, who led East Timor's struggle against Indonesian rule, commands more seats than Fretilin and says it should form a government. The alliance has said Gusmao is its candidate for prime minister.

Both blocks have rejected calls by Ramos-Horta to form a unity government. Ramos-Horta's office said he would announce his decision later Wednesday.

East Timor, a tiny nation of less than a million people, is facing major security, humanitarian and economic challenges just five years after it officially became Asia's newest state.

Unemployment hovers at around 50 percent, and aid agencies have warned that a fifth of the population is threatened by food shortages after crop failures. Gang battles frequently break out and some 100,000 people forced from their homes during last year's violence still live in tented camps.