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UPDATE 7-Italian president puts nation on path to fresh elections

* President appoints ex-IMF official as interim prime minister

* Elections to be held between September and early next year

* Markets fear elections will turn into referendum on euro, EU

* Interim PM Cottarelli tasked with passing 2019 budget

* 5-Star & League parties shift to election mode (Adds quotes from League leader, next steps by interim PM, voxpop)

ROME, May 28 (Reuters) - Italy's president set the country on a path back to fresh elections on Monday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.

The decision to appoint Carlo Cottarelli to form a stopgap administration sets the stage for elections that are likely to be fought over Italy's role in the European Union and the euro zone, a prospect that is rattling global financial markets.

The euro zone's third-largest economy has been seeking a new government since inconclusive March elections, with anti-establishment forces abandoning their efforts to form a ruling coalition at the weekend after a standoff with the president.

President Sergio Mattarella vetoed the parties' choice of a eurosceptic as economy minister, prompting the 5-Star Movement and far-right League party to accuse him of betraying voters and to drop their plan to take power.

Cottarelli told reporters after his appointment that elections would be held in the autumn or early next year. He also tried to reassure investors on the Italian economy.

"Speaking as an economist, in the past few days the tensions on the financial markets have increased," said Cottarelli, who had served as a cost-cutting tsar to a previous government.

"Nonetheless the Italian economy is still growing and the public accounts remain under control. I can absolutely guarantee that a government led by me would assure a prudent management of our public accounts," he added.

The prospect of fresh elections raised fears among investors that the vote could become a de facto referendum on Italy's euro membership. The euro hit a fresh six-month low and yields on Italian debt climbed, increasing the extra borrowing costs or spread that Italy pays in comparison with Germany.

Already Italian politicians are back in campaign mode.

A 5-Star source said it was considering an election alliance with the League. In March, 5-Star ran its own campaign while the League campaigned as part of a right-wing coalition, including with the party of former prime minister Silvio Berlusconi.

"This is not a democracy, this doesn't respect the popular vote," League chief Matteo Salvini said in a statement after Cottarelli accepted his appointment by the president.

Salvini characterised the move as the political establishment lashing out in its death throes, intent on keeping Italy enslaved and afraid of the reaction of financial markets.

"The next elections will be a plebiscite -- the population and real life against old political castes and the 'lords of the spread'," Salvini added.

FAILURE LIKELY

Cottarelli must try in the coming hours to form a government with majority support from parliament. He seems almost certain to fail - Berlusconi's Forza Italia party refused to back Cottarelli even before he was appointed - at which point the president would swear in him and his proposed cabinet, to serve until the next election.

He has been tasked with passing the 2019 budget by the end of this year, a challenge that may prove impossible without the confidence of parliament. In those circumstances, elections could be held as soon as September.

Voters at a Rome market criticised 5-Star and the League.

"It is ridiculous. They had so much time to sort themselves out and they also had an electoral campaign to explain their policies which did not include leaving the euro," pensioner Nuccio Lugini told Reuters.

Shopper Irene Teramo also backed the president in his decision to veto the economy minister. "I am a mother of a boy who has to travel the world and so I am convinced an anti-European minister is not the right thing for Italy," she said.

FUNDAMENTAL CHOICE

In a televised address on Sunday, Mattarella said he had rejected the coalition's candidate for the crucial economy portfolio, 81-year-old Paolo Savona, because the economist had threatened to pull Italy out of the euro zone.

"The uncertainty over our position has alarmed investors and savers both in Italy and abroad," Mattarella said, adding: "Membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion."

The League and 5-Star, which had spent days drawing up a coalition pact aimed at ending the stalemate that has lasted since March, responded with fury to Mattarella, accusing him of abusing his office.

5-Star leader Luigi Di Maio called on parliament to impeach the mild-mannered Mattarella. League chief Salvini threatened mass protests unless snap elections were called.

"If there's not the OK of Berlin, Paris or Brussels, a government cannot be formed in Italy. It's madness, and I ask the Italian people to stay close to us because I want to bring democracy back to this country," Salvini told reporters.

However, Salvini later dismissed Di Maio's call. "We need to keep cool. Some things cannot be done in the throes of anger... I don't want to talk about impeachment," he told Radio Capital.

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(Additional reporting by Massmiliano Di Giorgio, Giulia Segreti, Giuseppe Fonte, Giselda Vagnoni and Stefano Bernabei Writing by Mark Bendeich Editing by Alison Williams and David Stamp)