By Niluksi Koswanage

KUALA LUMPUR (Reuters) - Malaysian Prime Minister Najib Razak will likely win elections expected this year, helped by a raft of political and economic reforms, but his party needs fresh blood to be able to hold on its own in the long-term, former leader Mahathir Mohamad said.

Najib has begun unwinding a decades-old affirmative action policy that favored the Malay majority and eased tough security laws to win back the support of ethnic Chinese and Indian voters who had deserted the party in the last election in 2008.

"The PM's influence is now quite considerable," the 86-year-old Mahathir told Reuters in an interview in his futuristic Petronas Twin Towers office dotted with antique ceramics.

Najib, who has also announced social handouts to low income families in recent weeks, has seen his support grow as a result of these initiatives, Mahathir said.

But Najib's United Malays National Organization (UMNO), the lynchpin of the ruling National Front (BN), must shed its reluctance to embrace internal change.

"The party itself is not managed well. They do not allow new people to come in. They are scared," Mahathir said.

"I think BN will still win. The problem, of course, is trying to get the two-thirds majority. I think Najib will win more. It should be more than 2008. If he does not win more, Najib's position will become insecure."

Najib must call elections by next March, but is widely expected to hold the polls possibly by June as he seeks to capitalize on a resilient economy and the political reforms.

A DOCTOR IN THE HOUSE

Mahathir remains an influential force in ruling party circles. In 2009, he led the push to oust then prime minister Abdullah Ahmad Badawi and usher in Najib following a poor showing in the elections.

Mahathir, who recently published a 843-page memoir called "A Doctor in the House," to counter criticisms of political patronage and abuse of power during his rule, said the process of dismantling the affirmative action policy had taken longer than expected.

"It should start with removing all the abuses. For example, when we give Malays approved permits for importing cars, business licenses, contracts, they will sell it off," he said. "That should be stopped. It is still going on."

He said more had to be done to revitalize UMNO, which has dominated the National Front coalition since independence in 1957.

Najib has postponed internal party elections by 18 months to resolve issues of "money politics and political sabotage" as well as foster unity among its over three million members ahead of the polls.

"In my time UMNO was strong. Now it is not. If you support so and so, you get contracts, you get all these perks. Whether the party is down or not, it is irrelevant to them. They must be holding their posts and getting their perks," he said.

"So if somebody who is better than them comes in, then they feel their position is threatened. So they try their best not to allow better qualified people to come in, he added.

(Reporting by Niluksi Koswanage; editing by Stuart Grudgings and Sanjeev Miglani)