Serbian leader "no longer trusts" coalition allies

"There is no return to the past. Kosovo is now independent and it will start seeking membership in the international financial institutions to improve its economy as its first priority," Ahtisaari, who drew up the independence plan, told Reuters in an interview.

Serbia should now look to the future instead of jeopardising its chances of European Union membership by active resistance, he said.

The Kosovo crisis has prompted Kostunica to move closer to Russia, which opposed the province’s secession, and away from the European Union, whose biggest countries backed it.

His anti-Western line has driven him closer to the positions of the hardline nationalist Radical Party, Serbia’s strongest single party which is now in opposition.

That has fuelled media speculation that if the current coalition collapses, Kostunica could turn to the Radicals to form a new majority, and would also seek to team up with them in the case of a snap election.

Political uncertainty is hurting the economy, with data pointing to decreasing investor interest and a weakening currency.

LIBERAL CHALLENGE

In the latest sign of a coalition split, Kostunica’s bid to rule out any deal on closer EU ties until the bloc revokes the independence of Kosovo was overruled 2-to-1 on Thursday by his Democratic and G17 Plus partners, who said a parliamentary motion to that effect would drive the country into isolation.

It was the liberals’ strongest challenge to Kostunica’s policy of ’Kosovo above everything’, after months of allowing him to make anti-Western statements and stoke nationalist feeling over the province, Serbia’s religious heartland.

No major party is ready to concede the loss of Kosovo, whose breakaway last month also enjoyed U.S. backing.

Speaking in Kosovo, U.S. Assistant Secretary of State Daniel Fried said "it’s up to Serbs what their future is."

"The only barriers between Serbia and its European future will be those it places for itself," he told reporters. "They can block their own road. No one will block it for them."

In New York, Serbia requested a meeting of the U.N. Security Council to consider "the aggravation of the situation". The Russian mission said the meeting would be held on March 11.

Kostunica has already recalled ambassadors from Washington and European capitals that recognised Kosovo, and wants to cool ties as long as the EU insists on sending a supervisory mission to guide the territory to full statehood.

But the Democrats of President Boris Tadic and their allies don’t want to go as far as freezing Serbia’s EU membership bid, for fear of reviving the image Serbia had in the 1990s when it was a pariah state because of its role in the Yugoslav wars.

Looking for an alternative to the EU, Kostunica has pushed for closer ties with Russia, Serbia’s only big-power ally, personally insisting on a major energy sector deal with Moscow.

Hardline politicians in Serb-dominated north Kosovo on Friday urged Kostunica to scrap his current partners and go with the Radicals.

"Kostunica ... if he wants to keep Kosovo, must form a new government with new coalition partners," Kosovo Serb leader Milan Ivanovic told reporters in the Serb stronghold of north Mitrovica, which rejects the rule of Kosovo’s Albanian majority.

(Additional reporting by Branislav Krstic and Matt Robinson, editing by Richard Balmforth)