By Suleiman al-Khalidi

AMMAN, June 3 (Reuters) - A leading Iraqi Sunni party said on Sunday it was working to create a new parliamentary coalition to bring down the Shi'ite-led government.

Saleh Mutlaq, head of the National Dialogue group, said the multi-party talks involved the main Sunni grouping in parliament, the Accordance Front, former Prime Minister Iyad Allawi and smaller nationalist parties.

Moderate Sunnis have stepped up their criticism of Shi'ite Prime Minister Nuri al-Maliki's policies, saying they are biased towards Shi'ites and have reduced Sunni representation in government and sown sectarian divisions.

"We have been engaged in constructive talks to create this powerful bloc to save Iraq. Maliki's government should go because it has brought untold suffering to the Iraqi people," Mutlaq told Reuters.

Although such a bloc would not be able to form a majority in the 275-member assembly dominated by Shi'ite-led groups it could influence any government "in the right direction", he added.

Sunnis have been urging the Accordance Front, which is led by the moderate Iraqi Islamic Party and is the only grouping with government ministers, to pull out of Maliki's cabinet.

Mutlaq said stability in Iraq required that former Baathists not tainted by crimes should be rehabilitated and accused the government of allowing Shi'ite militias to act with impunity, obstructing the creation of security forces that can rise above sectarian loyalties.

CIVIL WAR

Washington is pouring tens of thousands of extra troops into Iraq in a last-ditch bid to avert all-out sectarian civil war between majority Shi'ites and Sunni Arabs dominant under Saddam.

"This government is not a government and should depart to give way for more competent administration that doesn't have a sectarian agenda and bias," Mutlaq said.

He said his own grouping with its 11 members of parliament would withdraw from parliament if it failed to create a broad anti-Maliki front.

"Parliament has become a cover for a political process that justifies the presence of this government. If the talks fail in forming a front .... we will leave alone," Mutlaq said.

He echoed the frustration of several moderate Sunni groups with what they see as Maliki's failure to address their demands, including for constitutional reforms, and legislation to allow former members of Saddam Hussein's party to take up public posts.

"We are at the end of the road and only a little time is left before we pull out of the political process," he said.

Washington has set benchmarks for Iraq's government on which it wants to see progress by September, and which U.S. officials believe will be crucial to bringing Sunni Arabs, the backbone of the insurgency, back into the political process.

Maliki, a Shi'ite Islamist, insists the government is making progress towards reconciliation between majority Shi'ites and Sunni Arabs who were dominant under Saddam.

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