UPDATE 2-Norway's centre-right opposition heads for big election win
* Four centre-right groups seen taking big majority
* Parties seen collecting 96 seats vs 85 needed
* Solberg faces tricky coalition talks with populists
* Conservatives promise tax cuts, better health care
(Adds exit polls, government election projections)
OSLO, Sept 9 (Reuters) - Norway's centre-right opposition, promising tax cuts and smaller government, was set to win Monday's election, but faced tough talks on forming a coalition with a populist party that wants to spend more of the nation's vast oil wealth.
The Conservatives, led by likely future Prime Minister Erna Solberg and three potential allies, were on course to collect 96 seats in parliament, 11 more than needed for a majority, leaving Prime Minister Jens Stoltenberg's Labour and its allies with just 73 seats, government projections showed.
Norway has enjoyed rare economic success thanks to its booming offshore oil sector boosting per capita GDP to $100,000. But growth is slowing, the government's record on critical social services is mixed and voters accuse Stoltenberg of wasting a once-in-a-lifetime economic boom.
"If all goes right, the Conservatives will reduce the public sector, stimulate growth within the private sector, increase exports, make us less dependent on the oil and gas industry and create new types of jobs in Norway," said Oslo teacher Daniel Gaim, 37, who supported the government four years ago.
Labour could remain the biggest party in parliament with around 30 percent of the vote, exit polls showed, followed by the Conservatives with 26 percent and the populist, anti-immigration and anti-tax Progress Party with 16 percent.
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The trickiest task for Solberg, nicknamed "Iron Erna" for her tough stances when she served in cabinet between 2001 and 2005, will be to negotiate a coalition deal with Progress while maintaining the support of two smaller centrist parties.
Although Progress has toned down its rhetoric, it is seen by some as too radical for government, and once had among its members Anders Behring Breivik, who killed 77 people in 2011 in a gun and bomb attack targeting Labour.
The small Christian Democrats and Liberals, one of which will be needed for a majority, are not keen on teaming up with Progress, objecting to its policies on immigration and spending, raising the prospect that Solberg may lead a minority cabinet.
"A majority government isn't necessarily the norm in Norway and it's slightly more likely we'll get a minority," said Elisabeth Ivarsflaten, a political science professor at the University of Bergen. "Norway has had many minority governments and they tend to work."
Bringing Progress into government could force Solberg to make concessions on spending, taxes and perhaps even a symbolic gesture on immigration. But any shift is likely to be mild.
"We expect a moderate increase in public spending combined with a reduction in taxes," Danske Bank said. "We expect the magnitude of the changes in aggregate to be marginal in the short run, as the market impact is likely to be."
The incoming government has immediate spending leeway since Stoltenberg's administration has spent less oil revenue than the annual cap set by parliament of 4 percent of the country's $750 billion oil fund.
"We can expect revisions to the budget put forward by the current government of the order of 5 billion to 15 billion crowns ($0.8-$2.5 billion), which is 0.22-0.66 percent of mainland GDP," Danske said.
With a budget surplus of 12 percent of GDP this year and the sovereign wealth fund worth $750 billion, Norway can afford just about any spending. But economists argue the state is already big, crowding out the private sector.
Parties are expected to explore coalition possibilities this week but real negotiations will not start until next week.
(Additional reporting by Alister Doyle, Joachim Dagenborg, Terje Solsvik, Henrik Stolen, Camilla Knudsen; editing by Mike Collett-White)