The AKP was unable to win the city of Diyarbakir, the largest in the Kurdish southeast, and several other key cities, including Izmir.
The secularist CHP (Republican People's Party) opposition, which accuses the AKP (Justice and Development Party) of having a hidden Islamist agenda, gained ground, winning 23 percent. It made inroads in Istanbul, Turkey's largest city, and in the capital Ankara. The far-right MHP (Nationalist Action Party) won 16 percent.
The elections were also marred by violence. Six people died and dozens were injured, the Turkish press reported, when supporters of rival candidates attacked each other using firearms in Kurdish south-eastern Turkey.
Analysts say the results are a wake-up call for a party grown comfortable in office and a prime minister allergic to criticism. Analysts say that Erdogan, who made the local polls a referendum on his seven-year rule, clearly misjudged voter dissatisfaction over his government's handling of the $750 billion economy, which is going into recession in 2009 after years of stellar growth.
"We think that Prime Minister Tayyip Erdogan will read the results correctly and concentrate on economic problems," said Yarkin Cebeci, a senior economist at bank JP Morgan in Istanbul.
"The Turkish electorate sent a clear warning to the ruling AKP, stating its dissatisfaction over the recent economic downturn," he said.
'Incompetent businessmen' get blame
During campaigning, which had all the trappings of a general election, Erdogan played down the effects of the global financial crisis on Turkey and blamed incompetent businessmen for rising unemployment, currently at a record 13.6 percent.
The results are not expected to halt reforms but may force Erdogan to seek compromises with the opposition to achieve his goals, which may in turn strengthen democratic institutions.
Erdogan has pledged to reform the constitution drafted by the military in 1982 and change the way the Constitutional Court works - steps that would remove some obstacles to EU membership but could revive tension with secularists who accuse him of pursuing an Islamist agenda. Erdogan denies this.
"As an example of a positive effect (of the results), we can say that political cooperation on constitutional changes which will come onto Turkey's agenda soon has become more important or even inevitable," wrote Erdal Safak, editor of Sabah newspaper, seen as having close ties with the government.
Erdogan denied any changes in his cabinet would not be done because of the election results.
"We will have some ministerial changes but only Erdogan knows which ones and the timing of them," a senior government source, who declined to be named, told Reuters before the polls.
Businesses, including association TUSIAD, and analysts say his style is sowing divisions at a time when Turkey needs to urgently address economic, political and social reforms.
(EurActiv with Reuters.)
