* Acts on urging of top Shi'ite Muslim cleric Sistani

* Sistani says changes also needed in security services, wages

* Reforms could bolster Baghdad in fighting Islamic State

(Recasts, adds Abadi statement)

BAGHDAD, Aug 14 (Reuters) - Iraqi Prime Minister Haider al-Abadi ordered an overhaul of the judiciary after the country's most influential Shi'ite Muslim cleric singled it out as one of the most important priorities of a new campaign against corruption.

Parliament unanimously approved a sweeping reform plan this week proposed by Abadi in the biggest shake-up of Iraq's governing system since the 2003-2011 U.S. military occupation.

Grand Ayatollah Ali al-Sistani has given Abadi crucial support in the reform drive after public anger at power cuts and mismanagement of other services spilled onto the streets of Baghdad and southern Iraqi cities.

Critics say the current system has encouraged graft and incompetence, depriving Iraqis of basic services while undermining its security forces in the battle against Islamic State insurgents who control large parts of the country.

Abadi's initiative eliminates entire layers of government, scraps sectarian and party quotas for state positions, reopens corruption investigations and gives the premier the power to fire regional and provincial bosses.

In his first public comments since the measures were announced, Sistani called judicial reform "one of the most important aspects of the reform process".

"It is not possible to achieve true reform without it. Even if corruption has spread to the judiciary, there is no small number of honest judges whose hands have not been tainted and will not hesitate to achieve justice," his spokesman, Sheikh Abdul Mahdi al-Karbalai, said in a Friday sermon.



"RADICAL MEASURES" NEEDED

Hours after the sermon, Abadi told the judiciary to "take radical measures to ensure the prestige and independence of the judiciary and enable it to fight corruption and enshrine the principle of justice among citizens".

The message, posted on Twitter, provided no detail about what those measures might entail.

Part of Abadi's campaign calls for a committee of judges known for their integrity to investigate and prosecute corrupt officials who he has accused of plotting sabotage to preserve their privileges.

The governing system set up under the U.S. occupation included numerous overlapping senior posts, many set aside to be divvied up on ethnic and sectarian grounds among Iraq's majority Shi'ites and minority Sunni Muslims and Kurds.

That was intended to reduce strife by keeping the government inclusive. But Abadi, a Shi'ite, complained it encouraged ethno-sectarian party patronage, breeding corruption and incompetence so pervasive it made Iraq nearly impossible to govern.

Critics have accused Abadi of trying to consolidate too much power in his own hands, which he denies.

"We do not wish to reinstate a political system where there is only one leader and everyone else is insignificant," Abadi said at a youth forum on Thursday, an allusion to Saddam Hussein who was overthrown in the U.S.-led 2003 invasion. "This is the return of dictatorship and we do not want it."

Sistani also called for reforming the security services following a massive bombing in a Shi'ite district of Baghdad on Thursday claimed by the Sunni Islamic State, and for reducing inequality in the salaries of public employees.

"It is unacceptable that some major officials make tens of millions in salary every month, while many employees do not make more than 300,000 dinars ($261.32)," Karbalai said. ($1 = 1,148.0000 Iraqi dinars)

(Reporting by Saif Hameed; Writing by Stephen Kalin; Editing by Mark Heinrich) ((stephen.kalin@thomsonreuters.com; +961 81639179; Reuters Messaging: stephen.kalin.thomsonreuters.com@reuters.net))

Keywords: MIDEAST CRISIS/IRAQ REFORMS