* Protests erupted late December over Sunni minister's arrests
* Shi'ite, Sunni, Kurdish blocs deadlocked in crisis
* Insurgents still seeking to spark sectarian confrontation
By Sufyan Mashhadani
MOSUL, Iraq, Jan 20 (Reuters) - An Iraqi protester set himself on fire on Sunday in the northern city of Mosul in a dramatic turn after more than three weeks of Sunni Muslim rallies that are challenging Shi'ite Prime Minister Nuri al-Maliki's government.
Thousands of Sunni demonstrators have rallied since late December against a Shi'ite-led government they say has marginalised their minority sect, raising fears the OPEC country may slide again into widespread sectarian confrontation.
During protests by around 2,000 people in the northern city of Mosul, one man set himself on fire before others quickly stamped out the flames with their jackets, police said. He was sent to hospital with minor burns to his face and hands.
"We don't want people to hang themselves or burn themselves, this would be against Islam," said Ghanim al-Abid, a protest organiser in Mosul, 390 km (240 miles) north of Baghdad. "But he reached such a state of despair he set himself on fire."
Self-immolations have had resonance in the Arab world since a Tunisian vegetable seller set himself on fire two years ago. His death in January 2011 triggered the wave of uprisings that toppled leaders across North Africa and the Middle East.
Sunday's incident in Iraq shows how frustration among Sunnis has not ebbed despite concessions from Maliki.
A year after the last American troops left, Iraq's government of Sunni, Shi'ite and ethnic Kurdish parties is deadlocked over how to share power. Insurgent bombers are still seeking to inflame sectarian tensions.
The Shi'ite premier survived an attempted vote of no confidence last year, but he faces increasing pressure from Sunni protests and from a dispute with the country's autonomous Kurdistan region over control of oil reserves.
Many Iraqi Sunnis feel they have been unfairly targeted by security forces and sidelined from power since the fall of Sunni dictator Saddam Hussein after the 2003 U.S.-led invasion and the rise of the Shi'ite majority through the ballot box.
Protests have focussed in Anbar province, a vast desert area that makes up a third of Iraq's territory, populated mainly by Sunnis in towns and settlements along the Euphrates.
SYRIA CRISIS LOOMS
Violence and Sunni unrest are worsening concern the conflict in neighbouring Syria, where mainly Sunni rebels are fighting Shi'ite Iran's ally President Bashar al-Assad, will upset Iraq's own delicate sectarian and ethnic balance.
A suicide bomber killed an influential Sunni lawmaker on Tuesday, hugging the politician before exploding his bomb, and another suicide bomber hit the disputed city of Kirkuk a day later, killing more than 20 people.
Iraq's political crisis has been complicated by the deepening rift between the Arab-led central government and the country's autonomous Kurdish enclave over control of oilfields and territory along their internal border.
Kurdistan has enraged Baghdad by signing oil deals with Exxon Mobil and Chevron to develop oilfields, agreements the central government rejects as illegal. Kurds have also courted Turkey for an independent oil pipeline deal.
Sunni turmoil erupted in late December after state officials arrested members of a Sunni finance minister's security team on terrorism charges. Authorities denied the arrests were political, but Sunni leaders saw them as a crackdown.
Maliki has appointed Deputy Prime Minister Hussein al-Shahristani, an influential Shi'ite figure, to address protester demands, and the government has released more than 400 detainees in an effort to appease rallies.
The prime minister on Sunday accused Iraqi Kurdistan's leader and Turkey of trying to inflame sectarian tensions.
"We call on Iraqi people of all factions and components to adhere to the language of national dialogue and be aware of suspicious regional and political agendas," his office said in a statement.
Protesters want anti-terrorism laws modified, prisoners released, an amnesty law passed and an easing of a campaign against former members of Saddam's outlawed Baathist party, a measure Sunnis believe has been used to target their leaders.
They are also demanding better government services, a complaint they share with other Iraqis frustrated by the lack of economic progress despite windfall state revenues from growing oil production.
"There is no time left for talks. The government has to stand up to its responsibility and take a crucial decision to meet demands," said Sunni lawmaker Wihda al-Jumaili.
Sunni protesters are also split among moderates more keen to work to improve power-sharing agreements and hardline Islamist voices who are calling for Maliki to be ousted and even the formation of a separate Sunni region inside Iraq.
More hardline Iraqi Sunni leaders believe the fall of the Assad government and the rise of a Sunni regime next door will weaken Shi'ite Iran's influence and strengthen their own position against the Shi'ite-led government in Baghdad.