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By Alain Iloniaina

ANTANANARIVO (Reuters) - Police arrested an opposition leader in Madagascar on charges of holding an illegal rally on Tuesday, compounding the island nation's political crisis.

Laza Razafiarison's small Avotr'i Madagasikara party has called for the departure of the country's interim president who came to power in a 2009 coup and has since fallen out with African and Western powers over planned elections.

Police fired teargas at the opposition party's supporters when they held a small rally on Monday and officers said they moved in to arrest Razafiarison after he organized another unauthorized gathering on Tuesday.

"Seven others were also arrested and they are under investigation," police commander Colonel Florens Rakotomahanina told Reuters by phone.

The former French colony has been in chaos since Rajoelina seized power with military support, ousting former President Marc Ravalomanana and creating turmoil that scared off investors and tourists.

Rajoelina and Ravalomanana had reached a deal with regional states to restore order, based on the condition that neither of them would stand in elections, scheduled for this year.

But when Ravalomanana's wife, Lalao Ravalomanana, chose to run, Rajoelina said the pact had broken down and put his name forward.

Foreign donors then suspended election financing and the African Union told Rajoelina and Lalao Ravalomanana to pull out by the end of July or face travel bans and other sanctions.

The impasse has already delayed the vote by a month to August 23, and analysts say there are now doubts whether it will happen at all.

On Tuesday, Rajoelina spent a second day in Tanzania meeting with President Jakaya Kikwete, who chairs a Southern African Development Community grouping on politics, security and peace, to discuss the political situation on the island.

Tanzania's State House said the two met on Monday evening, and were due to hold more talks on Tuesday.

"The two leaders have agreed ... to continue with talks with an aim of getting answers that will be acceptable to all sides in the Madagascar crisis on how to get the country out of its present problems," Kikwete's office said.

(Editing by George Obulutsa and Andrew Heavens)

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