By Robert Muller
PRAGUE (Reuters) - Czech coalition parties sought to avoid a snap election on Wednesday and find a way to steer the country toward a scheduled vote in October after Prime Minister Bohuslav Sobotka's shock resignation.
Sobotka announced on Tuesday that he and his government would step down, less than six months before its term finishes, to resolve a long-running dispute with billionaire Finance Minister Andrej Babis, his main political rival.
The Social Democrat leader, whose party trails Babis's centrist ANO movement by a double-digit margin in polls, justified the risky and drastic step by saying that simply firing Babis would have turned him into a 'martyr'.
Sobotka is due to hand in his resignation on Thursday to President Milos Zeman, who will have a range of options after that. A spokesman for Sobotka said the resignation of the full cabinet would take effect in mid-May.
Zeman could reject the resignation, or leave the current cabinet governing until the election despite it, or name a new cabinet with a prime minister of his choice.
The last two options might meet Sobotka's main objective of deposing Babis from the Finance Ministry as his tax issues are being investigated, but they could also cost him his own job.
Pavel Belobradek, chief of the third coalition party, the Christian Democrats, said: "I think the government could continue with the same floorplan, only without Mr Sobotka and Babis."
Parties have spoken against an early election and the head of the Social Democrats' lower house parliamentary group told reporters on Wednesday the party did not support it.
Sobotka's government has been the longest-serving for 15 years, with previous administrations falling due to coalition disputes or corruption scandals. Markets have taken the news in their stride, without any sell-offs.
BABIS UNDER FIRE
Babis, the second-richest Czech businessman, has come under fire over the legality of his use of tax-free bonds and the payment of European Union small business subsidies to a company he ultimately acquired.
His Agrofert group, which he shifted to a trust fund earlier this year, includes hundreds of firms in chemicals and farming, as well as two national newspapers and a radio station.
He has denied wrongdoing and rejected calls to quit.
The ANO party, which Babis set up and finances, has drawn support for its business-like approach to government and pledge to weed out corruption. It has attracted voters tired of party politics and willing to overlook questions over Babis's affairs.
With the press and the lower house questioning Babis in the recent months, speculation had grown that Sobotka might fire him. But that would have required formal approval by Zeman, who has had good relations with Babis and poor rapport with Sobotka.
Some commentators said Sobotka's resignation could help him by exposing Babis to more scrutiny, while others said it smacked of desperation.
(Additional reporting by Jan Lopatka; Writing by Jason Hovet; Editing by Mark Trevelyan)