* Iran elects new parliament on Feb. 26

* Guardian Council allows hundreds more candidates to run

* Power struggle of reformists, conservatives intensifying

By Bozorgmehr Sharafedin

DUBAI, Feb 6 (Reuters) - Iran's powerful election vetting body, the Guardian Council, decided on Saturday to allow hundreds more candidates to take part in a parliamentary election this month, in a move that rekindled the hopes of reformists and moderates.

A power struggle between Iranian conservatives and reformists has intensified since the removal of international economic sanctions against Tehran following its nuclear deal with the West. Hardliners fear Iranian voters will now be more inclined to reward reformist candidates.

Former president Akbar Hashemi Rafsanjani, a close ally of Iran's moderate President Hassan Rouhani, welcomed the decision.

"The good news for the disqualified candidates is that 25 percent of them have now been allowed to run in the election ... so we will experience a competitive election in February," Rafsanjani was quoted as saying by the Fars news agency.

In a setback for Rouhani and Rafsanjani last month, the Guardian Council, composed of clerics and jurists, had excluded thousands of parliamentary hopefuls and four-fifths of candidates for the body which chooses Iran's next Supreme Leader. urn:newsml:reuters.com:*:nL8N15A2GC

But the Council said on Saturday it had approved an extra 1,500 parliamentary candidates for the election. It was still looking into complaints from candidates disqualified from standing for the 88-member Assembly of Experts, which will pick a replacement for Supreme Leader Ayatollah Ali Khamenei.

Iran's ILNA news agency reported on Saturday that Rafsanjani's son and daughter of Rafsanjani, Mohsen and Fatemeh, both considered reform-minded, were still barred from running.

ENDING ISOLATION

Last week Rafsanjani, who was Iran's president from 1989 to 1997, criticised the disqualification of reformist and moderate candidates and accused the Guardian Council which has close ties to Ayatollah Khamenei, of eliminating rivals. urn:newsml:reuters.com:*:nL8N15G20B

Although most of those disqualified belong to the reformist and moderate factions, a few hardliners such as lawmaker Hamid Rasaei have also been barred from running.

Siamak Rahpeik, spokesman for the Central Election Supervising Committee, said on Saturday that 55 percent of all candidates had now been ruled eligible to stand and that the number of candidates able to compete for each of the 299 parliamentary seats had increased from 16 to 20.

Khamenei grudgingly allowed Rouhani to negotiate the nuclear deal after the moderate cleric won the 2013 presidential election with a landslide on a pledge of easing Iran's isolation abroad and repression at home.

But hardliners now fear that voters, anticipating improved living standards with the removal of sanctions, will reward pro-Rouhani candidates in the elections.

The future make-up of the Assembly of Experts is also seen as crucial for shaping Iran's future path.

(Reporting by Bozorgmehr Sharafedin; Editing by Gareth Jones) ((bozorgmehr.sharafedin@thomsonreuters.com; Mobile: 00971-55 386 5977;))

Keywords: IRAN ELECTION/POLITICS