* Ruling party loses border province in rare upset
* Protest votes over Syria policy boost opposition
* Locals say economy, social cohesion under threat
By Dasha Afanasieva
ANTAKYA, Turkey, March 31 (Reuters) - Turkey's policy of keeping its border with Syria open despite the war there cost the ruling party control of the border province of Hatay in local elections at the weekend.
Voters punished the government for a strategy they see as fuelling insecurity and hitting the economy - a striking upset amid a wave of victories for Prime Minister Tayyip Erdogan's party in Sunday's polls.
The open border provides a lifeline for rebel-held areas which has allowed humanitarian aid in and refugees out.
But it has also drawn accusations of allowing radical fighters to cross the border unchecked and of burdening a fragile economy with an influx of the displaced.
Thousands of people celebrated overnight in the old city centre of Antakya, the ancient Antioch, and administrative capital of Hatay, honking car horns and waving the red flags of the main secularist opposition CHP as news of its victory emerged.
Some climbed a statue of Mustafa Kemal Ataturk, founder of the modern secular republic, as music blared from car boots.
"The Syrian crisis and the problems resulting from it are the biggest worries for people in Hatay," said Lutfu Savas, who defected from the AK Party and won Sunday's mayoral race for the CHP. "We want peace and for people to go back to Syria."
The CHP had little cause for celebration elsewhere, failing to gain control of Istanbul or Ankara.
Erdogan's AK Party won about 46 percent of the vote nationwide but in Hatay the CHP overturned an 18 percent lead for the AKP in the last local election five years ago, winning 41.2 percent of the vote to the AKP's 40.3 percent.
Erdogan has strongly backed opponents of Syrian President Bashar al-Assad since civil war erupted in 2011. Turkey opened its border to let in 900,000 Syrian refugees, built camps to house them and gave free passage into Syria for the armed fighters, now dominated by hardline Islamists, battling Assad.
But residents punished Erdogan's government for policies they say have destabilised society, wrecked the economy, brought floods of refugees, and seen rebel fighters and radicals mingle amongst them.
"If this government goes on, they will force us into a war with Syria. For years we went to Syria and now we can't," said Seyhan Gullum, a 29-year-old decorator.
"The AKP says the refugees are guests. But the radicals are destabilising Hatay and dividing the different religions that used to live happily together," said Caner, a 27-year-old law student whose family had previously supported Erdogan.
Erdogan's critics, especially among Hatay's large Alevi Muslim community, say the open-door policy has fed a sense that Hatay itself is a war zone and has scared away badly needed tourists. The region has a diverse population including Christians, Alevis and Sunni Muslims.
There is no sign of any let-up in the Syrian war, now in its fourth year, in which at least 140,000 people have been killed and millions made refugees. Fighting is especially intense in and around the city of Aleppo, just 45 km (28 miles) from the Turkish border.
Locals complain of unemployment as refugees, most of whom live outside official camps, accept lower wages. They say house prices are rocketing and fear worsening violence.
In May, twin car bombs killed 43 people and wounded more than 100 in a shopping district in the Hatay border town of Reyhanli. The government said it suspected Syrian involvement.
"AKP is separating people from each other, dividing them into groups. With the Syrians we're like brothers, but now there is racism, factionalism," said 34-year-old Sakir, a contractor.
"We were so good to Syria but now they treat us like we're part of the war," he said.
($1 = 2.1909 Turkish liras) (Additional reporting by Ayla Jean Yackley, Editing by Alexandra Hudson and Angus MacSwan)