By Georgina Prodhan
VIENNA (Reuters) - Prospects of a center-right government in Austria faded on Friday as both the conservative People's Party and the far-right Freedom Party (FPO) moved away from a possible alliance with the new Euroskeptic party of industrialist Frank Stronach.
The 81-year-old billionaire Austro-Canadian car parts magnate tried to break the stranglehold of the Alpine EU nation's two mainstream parties by creating a pro-business force advocating deregulation and a possible withdrawal from the euro.
But Team Stronach fell into disarray this week after a weaker than expected result in national elections last Sunday, in which the centrist coalition retained a narrow combined majority despite a surge by the anti-euro FPO.
Euro skeptics and anti-immigration groups have gained ground in elections in many European Union states amid a voter backlash against the euro zone's nearly four-year-old debt crisis.
Austria, like Germany, escaped the worst of the crisis and has relatively low unemployment, but many voters resent funding bailouts for weaker southern euro zone partners.
The Freedom Party ruled out an alliance with Stronach's movement, which fired many of its leaders this week, while key provincial chiefs in the People's Party (OVP) also warned against letting Stronach enter a government.
"That would be negligence. We don't build on sand," FPO leader Heinz-Christian Strache told a news conference.
Even regional OVP barons opposed to continuing business as usual with the center-left Social Democrats (SPO) expressed skepticism that a deal with Stronach was viable.
"Only chaos would result," Tyrol OVP chief Guenther Platter told journalists in Innsbrueck, according to the Salzburger Nachrichten, noting that Stronach had already left Austria, where he can only stay for limited periods for tax reasons.
Stronach's party would be a necessary third partner for the OVP and FPO to form a right-wing majority as an alternative to the outgoing OVP-SPO grand coalition.
Stronach, founder of car-parts firm Magna International, has shaken up the party after its disappointing 6 percent score, replacing the parliamentary floor leader and several regional chiefs.
The Social Democrats, set to get a mandate next week to form a new government, have expressed a clear preference for renewing their alliance with the OVP. But under pressure from hardliners, the OVP has said it wants to keep all options open.
Chancellor Werner Faymann's SPO won nearly 27 percent of the vote, ahead of the OVP with 24 and FPO with 20.5 percent. The combined 50.9 percent for the SPO and OVP was their worst result since World War Two.
Euroskeptical parties - the FPO, Team Stronach and the smaller BZO, which failed to make it back into parliament - polled a combined 30 percent of the popular vote.
(Reporting by Georgina Prodhan; Editing by Paul Taylor)