ANALYSIS-Italy's real election battle is Monti vs Berlusconi
* Berlusconi aims to block centre-left in parliament
* Centre-left almost certain to win election
* However, real battle is in uncertain Senate vote
* Berlusconi success could bring paralysis and instability
ROME, Jan 8 (Reuters) - Italy's election campaign is shaping up as a bitter contest not between right and left but between Silvio Berlusconi and outgoing Prime Minister Mario Monti to win the balance of power after the February poll.
The final lines were drawn on Monday when Berlusconi sacrificed his own candidacy for prime minister as the price for winning a crucial new alliance with his estranged allies in the devolutionist Northern League.
This alliance is aimed at blocking control of parliament by the centre-left, which opinion polls show as virtually certain to win the Feb. 24-25 elections.
But if Berlusconi succeeds, Italy is likely to face renewed instability and legislative paralysis which could make it once again the biggest concern in the euro zone.
Italy narrowly avoided a Greek-style meltdown in November 2011 when Berlusconi, weakened by a sex scandal, was forced out as prime minister and replaced by Monti.
If Berlusconi gains the balance of power he could frustrate centre-left leader Pier Luigi Bersani in fulfilling his promise to stick to Monti's austerity and pro-European policies, which have brought Italy relative stability in the past year.
The billionaire media owner's biggest problem in implementing his strategy is Monti, whose centrist alliance has the same aim as Berlusconi: winning enough seats in the Senate to give it influence way beyond its likely share of the poll.
While the centre-left is almost certain to win the lower house, the real battleground will be in the much less certain Senate contest.
The battle for this prize explains why Berlusconi and Monti have made almost daily personal attacks on each other in a blitz of television interviews that have drawn accusations they are making unfair use of the airwaves.
Bersani has remained largely above the fray, cultivating his colourless but reassuring image of calm dependability while Monti and Berlusconi try to hurt each other.
However the launching of Monti's centrist front, the sealing of Berlusconi's broader centre-right alliance and the emergence of a smaller leftist group are all bad news for Bersani because they could dilute his share of the vote.
TOO CLOSE TO CALL
A new Ipsos poll published in the financial daily Il Sole 24 Ore on Tuesday showed the Senate vote too close to call in three big regions which could be decisive in the February vote.
"In Lombardy, Campania and Sicily the outcome of the vote is absolutely unpredictable," said Roberto D'Alimonte, one of Italy's foremost experts on voting trends.
Italy's much maligned electoral law awards Senate seat bonuses to the coalition that wins in each individual region. Bersani would therefore only have to lose in populous Lombardy and Veneto to forgo a majority in the upper house, even if he won all of Italy's remaining regions, said D'Alimonte.
In another paradox caused by the law, he said Monti should hope Berlusconi robs Bersani of enough Senate votes in key regions to hand the former European Commissioner the balance of power as a buttress for the future centre-left government.
Despite largely refusing to join the mudslinging, Bersani is clearly worried about the way things have panned out since Monti announced in December that he would join forces with other centrist forces in the election.
In a television interview on Monday, Bersani said Monti's candidacy was "not good news for Italy". However, he saw Berlusconi as his real enemy and Monti only as a "competitor", adding that he was open to a post-election alliance with the centrists.
This idea has been espoused for months by moderates in Bersani's Democratic Party, including his deputy Enrico Letta. They argue this would reassure European partners that the left will not throw away Monti's achievements, while still trying to stimulate economic growth and reducing the burden on pensioners and workers who have suffered most from the deficit-cutting policies of the past year.
Although Monti sharply reduced the pressure on Italy and brought down the government's borrowing costs to more affordable levels, the recession has worsened. Data on Tuesday showed youth unemployment had risen to an all time high above 37 percent in November.
D'Alimonte said that if Bersani failed to win the battleground regions in the Senate vote, he could face a situation similar to or worse than former centre-left Prime Minister Romano Prodi in 2006.
NIGHTMARE FOR LEFT
In a situation which is a recurring nightmare for Italy's left, Prodi's government collapsed and was replaced by Berlusconi within two years because it lacked a viable Senate majority. That election was fought under the same electoral law as this time.
An alliance between Bersani and Monti after the election would probably produce a stable government that could last and consolidate progress in implementing economic reform. But there is one big problem. Monti insists he would enter a government only if he were prime minister, and Bersani has ruled this out.
"The idea that the one who wins less votes should be in charge is an old theory unknown in the rest of western Europe," he said in his television interview.
Analysts say that if an agreement between Monti and Bersani was impossible, then the euro zone's third largest economy would be likely to face a short-lived centre-left government and a period of political turmoil dangerous for the whole region.
A Tecne opinion poll on Tuesday showed the centre-left comfortably ahead at nearly 40 percent, with Berlusconi's centre-right on 24.6 and Monti's centrists on just over 15 percent. However the numbers that count will be in regional votes for the Senate and voter intentions are not known in all of those.
The poll in Il Sole 24 Ore, however, showed a surge in the region of Campania - which returns the second largest number of senators after Lombardy - of a new leftist grouping led by anti-mafia magistrate Antonio Ingroia. This group was polling at more than 11 percent and could gift a regional victory to Berlusconi rather than Bersani if the trends do not change.
(editing by David Stamp)