By Hasmik Mkrtchyan

YEREVAN, June 20 (Reuters) - Thousands of opposition supporters protested in Armenia on Friday demanding a rerun of the presidential election, in the first demonstration since clashes with government forces in March killed 10 people.

The opposition accuses Armenian authorities of ballot-stuffing and intimidation in the Feb. 19 election won by Serzh Sarksyan, an ally of outgoing president Robert Kocharyan.

His main challenger, former president Levon Ter-Petrosyan, was placed temporarily under house arrest after the election.

Addressing about 8,000 of his supporters on Friday, Ter-Petrosyan said he would continue to fight for the presidency and vowed fresh protests.

"This criminal group ... shot at its own people," he told the crowd in central Yerevan, referring to the March 1 clashes between opposition supporters and police in which 200 people were also injured.

"Be sure, sooner or later these criminals will be brought to justice in front of its nation," he said.

"We will fight till the victorious end!" the crowd chanted.

"The only way out of this situation is to hold snap presidential and parliamentary elections," Ter-Petrosyan said. "The people will stand their ground."

He said the opposition would hold its next rally on July 4.

Ter-Petrosyan's All-Armenian National Movement boycotted a parliamentary election in May last year.

Armenia, an ancient Christian nation of 3.2 million, lies in a Caucasus mountains region that is emerging as a key route for pumping Caspian Sea oil and gas to world markets, although the nation has no pipelines of its own.

The Parliamentary Assembly of the Council of Europe (PACE) urged Armenia's political forces in April "to initiate an open and constructive dialogue" and called for "an independent, transparent and credible inquiry into the March 1 events".

"Progress made so far by the Armenian authorities in meeting the Assembly's demands following the February 2008 post-election violence has been judged insufficient," the PACE said in a statement in Strasbourg on Thursday.

The PACE also urged the authorities to guarantee a proper status and appropriate rights to the opposition, to reform the electoral process and ensure state-controlled media are free from any political interest.

Freedom of assembly, establishment of a truly independent judiciary and an end to arbitrary arrests were other demands.

Following the February election, western observers said polling was broadly in line with Armenia's international commitments but further improvements were needed. (Writing by Dmitry Solovyov; Editing by Janet Lawrence)

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