By Tsvetelia Tsolova

SOFIA (Reuters) - Thousands of people rallied on Friday to protest against the appointment of a media magnate as Bulgaria's new security chief in a show of discontent after disputed elections.

Chanting "Mafia" and "resign", about 10,000 people rallied in a main square in front of government headquarters in the capital Sofia. Smaller protests were held in other cities.

Protesters expressed anger at parliament's appointment of Delyan Peevski to the security post, which political analysts have described as another example of Bulgaria subjecting state institutions to private interests.

Legislators from the ruling Socialists and the allied ethnic Turkish MRF party endorsed Peevski, also an MRF deputy, for the security chief post by a simple majority without debate.

They acted hours after legal changes stripping the president of his power to appoint heads of secret services took effect.

The center-right GERB party, which failed to form a government after an early election last month, called parliament's choice "ridiculous" and demanded fresh elections.

President Rosen Plevneliev exhorted lawmakers to reverse the decision and called an extraordinary sitting of the national security council next week to discuss Peevski's appointment.

Post-communist governments in Bulgaria have failed to sever mutually advantageous links between politicians and businessmen, deterring foreign investment and keeping the Balkan country under strict EU monitoring and outside the passport-free travel Schengen zone ever since its 2007 admission to the bloc.

"NEGATIVE CONSEQUENCES"

In 2007, Peevski was sacked as a deputy minister of the then-Socialist-led administration in a corruption scandal. An investigation against him was later dropped and he was reinstated in the post.

Bulgarian media said Peevski stood behind a powerful network of national newspapers and television channels owned by his mother and which had been criticized for concentrating media ownership in the hands of a few.

British Ambassador Jonathan Allen tweeted: "The appointment has been rushed through with no hearings, debate or opportunity to find out about the candidate. Why?"

Prime Minister Oresharski defended parliament's decision, saying Bulgaria needed to take serious steps to stop organized crime and smuggling and Peevski was best suited for the job - although he lacks direct experience in the field.

"Peevski was chosen because he is not part of the system and we deliberately looked for such an external specialist so that he can restructure it," Oresharski told reporters.

He said several candidates were discussed internally but only Peevski's name was nominated and voted on in parliament in a process that took 15 minutes.

(Editing by Michael Roddy)