DILI: East Timor voted on Saturday in a parliamentary election in which Prime Minister Xanana Gusmao's party faces a stiff challenge from two opponents as it seeks to extend its term at the helm of Asia's newest and one of its poorest nations.

Gusmao told reporters he was confident his National Council of Timorese Resistance party (CNRT) would win 44 of 65 parliamentary seats on its platform of seeking foreign loans for infrastructure projects and expanding the amount of an oil fund used for the state budget beyond its current limit of three per cent.

Gusmao, a guerrilla leader in the fight to end Indonesian rule, became the first president after independence in 2002.

The main opposition Fretilin party, also a key player in the fight to secure independence, opposes foreign loans and wants to maintain the percentage of the $10.5 billion petroleum fund used for the budget at current levels.

Peace and stability are also key concerns for over 600,000 eligible voters in a country that saw factional violence in 2006 as well as in the period leading up to independence.

“I have given my vote and I hope my vote will not fall to the ground and go to waste, that what the parties have promised us, such as to open more jobs and create peace, will be realised,” Floriano da Silva, a student, told Reuters.

Indonesia invaded East Timor, a former Portuguese colony occupying half an island at the eastern end of the Indonesian archipelago, in 1975. It spent decades trying to crush opposition to its rule before the territory won independence following a referendum. A UN mission promoting stability remains to this day.

Gas dispute

East Timor has offshore gas resources but is embroiled in a dispute over the exploitation of the reserves with Australia's Woodside Petroleum, which heads a consortium of firms developing the Greater Sunrise project gas field.

Despite its petroleum fund, about half the Timorese population lives below the poverty benchmark of $0.88 per person per day and 50 per cent of children are underweight, according to a United Nations' report.

CNRT, the opposition Fretilin and the Democratic Party lead a total of 21 parties and alliances contesting the election.

There have been no reliable polls, but one analyst drew parallels between this election and a presidential poll won in April by Taur Matan Ruak, who defeated a Fretilin candidate and Nobel peace prize winner and incumbent Ramos Horta.

“If we were to look for indications about where this election might go, we can look to the presidential election. Because Ruak won, I think that probably gave a bit more momentum to CNRT,” Cillian Nolan, a Southeast Asia expert with the International Crisis Group, told Reuters.

Ruak ran as an independent but support from Gusmao helped him. Whoever wins, a coalition government with the Democratic Party is a likely outcome. Official results are expected on July 17 and the new government will be formed on August 8, the government said.

A decade after independence, the United Nations said its mission will end in December and it will hand over to the state the task of policing a country in which street gangs remain a significant problem.