By Aaron Maasho

ADDIS ABABA (Reuters) - The African Union urged South Sudan's President Salva Kiir on Thursday to quickly form a new government and respect the country's diversity in doing so after Kiir sacked his cabinet amid talk of a succession struggle.

Analysts say Kiir was trying to stem dissent and divisions inside his ruling Sudan People's Liberation Movement(SPLM) party over endemic corruption and an economic crisis, largely the result of disputes with Sudan that have prevented South Sudan exporting crude oil.

Vice President Riek Machar and Pagan Amum, SPLM Secretary General and South Sudan's top negotiator at talks with Sudan over the export of oil through Sudan, were among those suspended under a presidential decree announced on Tuesday.

But the biggest shake-up since South Sudan won independence two years ago comes at a particularly bad time as the country grapples with the dispute over oil flows with its northern neighbor, and with escalating rebel and tribal violence.

The African Union (AU) called on Juba to take measures to maintain calm and prevent violence.

"They ... call on the leaders of South Sudan to expedite the formation of a new cabinet," the Addis Ababa-based body said in a joint statement, alongside regional bloc IGAD, the United States, Britain, Norway and Switzerland.

"We encourage South Sudan to do so in a manner that reflects the diversity of the South Sudanese people, and in conformity with its transitional constitution and the democratic ideals the new country has espoused."

Machar, an ethnic Nuer, had recently hinted that he might challenge Kiir - a member of the dominant Dinka ethnic group - for the SPLM leadership before national elections in 2015. Kiir had already stripped Machar of some his duties in April in what seemed to be a move to curb his profile.

The men were on opposing sides of a split within the SPLM during much of the 1983-2005 civil war with Khartoum.

Amum - an ethnic Shilluk - had recently criticized Kiir for suspending two ministers in a fraud probe, according to local media. The presidential decree, announced on Tuesday, said a party committee would investigate him.

(Editing by George Obulutsa and Susan Fenton)