By Siva Sithraputhran and Anuradha Raghu

KUALA LUMPUR (Reuters) - Malaysian Prime Minister Najib Razak escaped a direct showdown with youth when a 23-year-old student gave up his bid to challenge him in his home constituency in the May 5 general election.

But Mohammed Bukhairy Mohammed Sofian's quixotic plan to run against Najib -- which he dropped to avoid diverting votes from the main opposition candidate -- was a reminder of how young voters are shaping politics in the Southeast Asian nation as never before and unnerving the long-ruling coalition.

He is one of 2.6 million Malaysians registered to cast their ballots for the first time, making up roughly a fifth of Malaysia's 13.3 million eligible voters. That is much higher than the 638,000 new voters five years ago.

Analysts say an upsurge in interest in politics following the opposition's best-ever election showing in 2008 has driven more young people to register.

Their numbers make young Malaysians a crucial, possibly decisive, source of support in an election that promises to be the closest since independence. They are also a force that could blur the traditional race-based faultlines that have shaped the political landscape in the multi-ethnic country.

An unbroken 56-year grip on power has given the ruling Barisan Nasional coalition control over mainstream media and the ability to spend freely in the election campaign as they preside over a period of strong economic growth.

Although a coalition win with a reduced parliamentary majority is seen as the most likely outcome, the opposition says that the new voters are the "X Factor" that could create Malaysia's biggest electoral shock since independence in 1957.

"I know what young people want. They want a voice and that means change," Bukhairy, a third-year Islamic political science student at Universiti Malaya, told Reuters.

An opposition win would bring unprecedented uncertainty to politics in Malaysia, whose government is the longest serving in the democratic world, and herald a major shake-up in five decades of cozy relations between government and business.

FORCE FOR CHANGE

Najib's government, which saw its parliamentary majority slashed in 2008, is struggling to respond to growing demands for more accountability and democratic reforms.

Those demands are being pushed most forcefully by the young, many of whom get their news from lively independent websites rather than state-controlled media. Many feel impatient with the gradual pace of reform under Najib, a 59-year-old veteran of the United Malays National Organisation (UMNO), which dominates the ruling coalition, and the son of a former prime minister.

An opinion poll by the respected pollster Merdeka Centre, released in February, showed that voters aged 21-30 are the age-group most dissatisfied with the performance of the prime minister, who enjoys an overall approval rating of 61 percent.

"With younger voters, I think the pattern of voting on racial lines is going to be more subdued. Certainly not as accentuated as with the older generation," said Ibrahim Suffian, program director at the Merdeka Centre.

Another survey, released in January by Universiti Malaya, showed 52 percent of new voters backing opposition leader Anwar Ibrahim for prime minister, with Najib at 30 percent.

"Things that are important to them are things like transparency, good governance and corruption. All these issues tend to look very bad for the government," said James Chin, head of the arts and social sciences school at Monash University Malaysia.

Protests for electoral reform and against a controversial rare earths plant, which in April drew tens of thousands onto the streets of Kuala Lumpur, have had a strong youth contingent.

"The activism is not necessarily political, it's simply a people-led movement after so many years of Barisan Nasional rule. It is wanting change," said Khairani Razak, a 22 year-old education major at Universiti Malaya.

Najib has made a concerted effort to pursue young votes. He's cultivated a cooler image, gathering nearly 1.5 million followers on Twitter. The ruling coalition, meanwhile, organized a series of free music concerts featuring international acts including K-pop sensation Psy in February.

More substantively, Najib approved landmark reforms of tough security and media laws in an effort to reach out to young and middle-class voters. But despite his efforts, Najib's government has struggled to shake off UMNO's reputation for cronyism and critics say the reforms are more form than substance.

POLITICAL FREEDOM

Student leaders say the university education system in Malaysia promotes an environment of unquestioning obedience that leaves little room for dissent.

"We are trained to follow. When students try to voice out anything, the authorities say the student is the opposition, against the university and so on," said Bawani KS, a 27-year-old law student at Universiti Utara Malaysia.

She became the poster-child for fighting oppression in the education system after a YouTube post went viral in January, showing her being shouted down by a speaker linked to a pro-government body at a student event.

"Employers are looking for candidates who are outspoken, who can think creatively. But nowadays our graduates can't fulfil these expectations," she added.

Graduate unemployment levels are disproportionately high in Malaysia. According to latest available data, unemployed 21-24 year-olds made up about 61 percent of the total number of jobseekers in 2011.

The Merdeka Centre poll in February found that 21-30 year olds were the group most worried about their personal finances. So Najib's campaign message of a booming economy -- which grew 5.6 percent last year -- may fall on deaf ears among many young Malaysians.

While free university education forms a central plank in the opposition's manifesto, the Barisan Nasional government has scoffed at the promise as irresponsible.

Instead, BN has targeted young voters in series of pre-election giveaways, setting aside 325 million ringgit ($106.6 million) for book vouchers and 300 million Malaysian ringgit ($98.4 million) for smart phones.

In an interview with Reuters last year, Khairy Jamaluddin, the 37-year-old head of UMNO's 600,000-strong youth wing, said it was a misconception that younger people would overwhelmingly vote for the promise of change represented by the opposition.

"We are the ones pushing for faster change," he said. "We have to make sure the reform agenda is not the monopoly of the opposition."

($1 = 3.0490 Malaysian ringgit)

(Reporting By Siva Sithraputhran and Anuradha Raghu; Additional reporting by Stuart Grudgings and Angie Teo; Editing by Stuart Grudgings and Alex Richardson)