* Basescu can return to power after court voids referendum
* Govt accepts decision but battle with president to rage on
* Dispute has raised EU concern for rule of law in Romania
By Ioana Patran
BUCHAREST, Aug 21 (Reuters) - Romania's Constitutional Court on Tuesday struck down a referendum to impeach President Traian Basescu, foiling a drive by the country's leftist government to oust its chief political opponent just months before a parliamentary election.
The government said it would accept the decision but the acting president said Basescu was now an "illegitimate" leader.
Two decades after the fall of communist dictator Nicolae Ceausescu, the battle pitting Basescu against Prime Minister Victor Ponta has raised rule-of-law issues and could flare again in coming months as one of the European Union's poorest states faces tough austerity demands from international lenders.
The court, as expected, ruled that a July 29 referendum called by the government to remove the political veteran Basescu was invalid because turnout fell short of the required 50 percent of the 18.3 million electorate.
"We stated that the referendum quorum condition was not met," Chief Judge Augustin Zegrean told reporters. He said Basescu, suspended by parliament before the referendum which was needed to confirm the impeachment, could now return to power.
The crisis has crippled policymaking, depressed the leu currency to record lows last month and angered the EU, which accused Ponta of undermining democracy and intimidating judges in the country long been criticised for graft and weak justice.
It shed light on weaknesses in Romania's institutional set- up, a wider problem in former communist EU member states as shown in Hungary earlier this year where Prime Minister Viktor Orban clashed with the EU over constitutional changes.
Basescu could return to office within days, pending rubber-stamping of the court decision by parliament, possibly on Thursday. The right-wing president's term expires in 2014.
Ponta said he would respect and implement the ruling. "I want to send a signal of stability to Romanians: The court decision will be respected and implemented," the premier told a news conference.
His government had maintained that the referendum should stand based on updated electoral lists that stripped out voters who live abroad or have died.
NO RESPITE IN POLITICAL BATTLE
But acting President Crin Antonescu, a co-leader of the USL, he made clear there would be no lasting peace between Ponta, who became Europe's youngest prime minister in May at 39, and the political veteran Basescu, 60, a former oil tanker captain who has been president since 2004.
"We do respect the court decision and Traian Basescu will again become a president. But he returns as an illegitimate president," Antonescu said.
"The court refused to see that at least 2 million Romanians shouldn't have been taken into account for the referendum quorum." There was no immediate statement from Ponta or Basescu.
Basescu has the power to appoint prime ministers and heads of security services, and to temporarily veto legislation.
Tensions will prevail ahead of the November parliamentary elections, which are likely to be won by Ponta's USL coalition.
The Balkan country needs to focus on austerity policies to keep a 5 billion euro IMF stand-by agreement on track.
"Continuing political tension and forthcoming elections are not conducive to coherent policymaking, especially regarding adherence to the tight targets of the EU/IMF bailout agreement," said Otilia Simkova, an analyst at Eurasia group.
The leu strengthened by 0.4 percent after the decision and Antonescu's statements to 4.4722 to the euro.
Ponta has accused Basescu of blocking government policies and turning a blind eye to corruption while starting a witch-hunt against rival politicians.
But Ponta himself has been bruised by findings by an academic panel that his doctoral thesis in law was plagiarism.
Analysts said the battle reflected a broader struggle for power and the justice system in the country where corruption is rampant and 19 members of parliament from Ponta's coalition are under investigation.
Officials in Ponta's party have denounced Basescu, saying he orchestrated the June conviction of Ponta's mentor, former prime minister Adrian Nastase, on charges of improper party funding.
In the July 29 referendum, 88 percent of those who cast ballots voted to impeach Basescu - but only 46 percent of registered voters took part.