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By Mohammed Assadi

RAMALLAH, June 14 (Reuters) - Palestinian President Mahmoud Abbas ordered the disbanding of the Hamas-led unity government on Thursday and called for the creation of an emergency cabinet under his control after the Islamists took over the Gaza Strip.

Tayeb Abdel-Rahim, Abbas's secretary general, said the president signed orders dismissing Prime Minister Ismail Haniyeh of Hamas, declaring a state of emergency in the Gaza Strip and the occupied West Bank and establishing an emergency government.

Hamas brushed aside Abbas's orders as "worthless" and said Haniyeh remained in office after the group routed Abbas's forces in six days of fierce factional fighting in Gaza.

"We have decided to do the following: to dismiss Prime Minister Ismail Haniyeh. We are declaring a state of emergency in all the lands of the Palestinian Authority ... and establishing a government authorized with implementing the regulations and instructions of the state of emergency," Abdel-Rahim said, reading a statement from Abbas.

Senior Palestinian officials said Abbas would name members to a new emergency government on Friday, though it was unclear how long the administration would last.

Under Palestinian law, Abbas can declare a state of emergency for not more than 30 days to sack the government. The state of emergency can be extended for up to 30 days more, but only with the approval of two thirds of the parliament.

Hamas has a majority in the parliament -- though Israel's arrest of nearly half of Hamas's lawmakers puts that majority in doubt and makes it hard to reach a quorum. That could enable Abbas to keep the state of emergency in place longer.

Some Fatah officials and U.S. diplomats have argued that Abbas could rule by decree for six months to a year before new elections.

In his statement, Abbas made clear he hoped to call for early elections "as soon as the situation on the ground allows him to do so".

Presidential elections are not due until 2009 and parliamentary elections until 2010. Abbas has repeatedly said he will not run for another term.

The Palestinian basic law, which serves as a constitution, has no provision on calling early parliamentary elections. Fatah officials say Abbas can do this by issuing a presidential decree. Hamas says it would be illegal.

HAMAS "COUP" IN GAZA

Abbas's statement said Hamas's actions in Gaza amounted to a coup.

Palestinian political leaders and Arab diplomats said that under Hamas, the Gaza Strip would function autonomously from the West Bank, which is dominated by Fatah. Many Palestinians hoped to establish a contiguous state on both territories.

"So what comes next? How will two conflicting authorities in two separate Palestinian areas resolve the crisis?" an Arab diplomat asked rhetorically.

Hamas said Haniyeh would not step down.

"Prime Minister Haniyeh remains the head of the government even if it was dissolved by the president. According to the law the government remains a caretaker government," senior Hamas official Sami Abu Zuhri told Reuters.

In the West Bank city of Ramallah, many members of Abbas's secular Fatah movement celebrated his decision to disband the unity government, which Abbas formed with Haniyeh in March over American objections. Dozens of Fatah gunmen fired into the air.

"There was a need (to act) ... to stop giving Hamas legitimacy for what it is doing. They will become outlaws controlling Gaza," senior Fatah official Hussein al-Sheikh told Reuters.

Hamas defeated Fatah in parliamentary elections in January 2006, prompting Western powers to impose crippling economic and diplomatic sanctions that were just beginning to ease when the fighting broke out. (Additional reporting by Nidal al-Mughrabi in Gaza, Wafa Amr in Ramallah)

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