French PM Villepin resigns ahead of new government

PARIS, May 15 (Reuters) French Prime Minister Dominique de Villepin and his entire cabinet resigned today, clearing the way for president-elect Nicolas Sarkozy to nominate a new government later this week.

President Jacques Chirac, who is due hand over power to Sarkozy tomorrow, accepted Villepin's resignation, the president's office said.

The next French prime minister is widely expected to be moderate conservative Francois Fillon, and he could take office as early as Thursday morning, a political source said.

Villepin, a former foreign minister who was fiercely opposed to the Iraq war, was appointed prime minister by Chirac in May 2005 after France rejected the EU constitution in a referendum.

He is not expected to stay in politics.

Villepin's short time as head of government was marked by riots in ethnically-mixed suburbs, protests over a youth jobs law and accusations that he orchestrated a smear scandal to tarnish his rightist rival Sarkozy.

But he also oversaw a steady fall in unemployment and a period of faster economic growth, and at one point it looked like he might run for president in the 2007 election.

However, his image was severely dented last year when widespread street demonstrations forced him to withdraw a law that had made it easier to hire and fire young workers.

Shortly after the protests, he ran into fresh problems over the still-unresolved Clearstream scandal in which he was accused of using the intelligence services to try to undermine Sarkozy.

In December last year he was questioned by magistrates as a witness for 17 hours over the affair, which revolves around faked bank accounts and hushed-up government probes.

Villepin has denied any wrong-doing.

He has said that he might now resume his career as a writer or else return to the French foreign ministry as a diplomat -- his original calling.

Reuters TB VV2317