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Kuwait's top court on Sunday scrapped last December's parliamentary election, which was boycotted by the opposition, but approved the controversial electoral law that sparked the boycott.
The constitutional court, whose rulings are final, dissolved the loyalist-dominated parliament and ordered a fresh election, in the verdict read out by presiding judge Yousef al-Mutawah.
It was the second time in a year that the court had ordered a dissolution of parliament. Last June, it scrapped an opposition-dominated parliament, saying there had been flaws in the procedures that led to its election.
Kuwait's emir, Sheikh Sabah al-Ahmad al-Sabah, decreed the controversial amendment to the electoral law last October intensifying a bitter dispute that had engulfed the emirate since 2006, sparking street protests, some of which turned violent.
The electoral law passed in 2006 allowed each eligible voter to choose a maximum of four candidates. The amendment reduced the number to just one.
The court ruled the amendment is "in line with the constitution" and that it was made to "serve national interests" and give minorities the chance to be represented in parliament.
It said it was scrapping the December election because a second decree issued by the emir last October, which had set up a National Election Commission, was unconstitutional.
Islamist, nationalist and liberal opposition groups had rejected the electoral law amendment charging that it had enabled the government to manipulate election results and subsequent legislation.
Several opposition MPs spoke out strongly against the court's decision to uphold the amendment.
The emir was scheduled to address the nation later on Sunday, state media said.
The court ruled that all legislation passed by the now-dissolved parliament would stand.
Its speaker, Ali al-Rashed, confirmed that the new election would be held on the basis of the amended law despite threats by the opposition in recent weeks to repeat their boycott.
The opposition said it would hold a special meeting later on Sunday to review its position.
"Today's ruling is the worst decision as we are not concerned about dissolving parliament as much as we are concerned about abolishing the amendment decree," Tabtabaie wrote on his Twitter account.
Former opposition MP Mubarak al-Waalan said "the only way out of the current crisis is the withdrawal of the decree" by the government.
But the liberal opposition National Action Bloc said in a statement that it respected the court's verdict.
The cabinet ordered officials to implement the judgment.
Information Minister Sheikh Salman Humoud Al-Sabah said it would boost democracy in Kuwait.
"The court's decision today enhances the durability of the democratic system that is enjoyed by Kuwait. Kuwait has a proud history of respecting the constitution and maintaining the rule of law," the minister said.
Even though the government is appointed by the emir, Kuwait was long looked upon by neighbouring Gulf states as a relative beacon of democracy, with its vibrant parliament and freedom of speech.
But the image has been tarnished by years of non-stop wrangling since the electoral law was changed in 2006.
Political analyst and former minister Saad al-Ajmi said the crisis was likely to continue.
Kuwaiti citizens make up just 1.2 million of the emirate's 3.8 million population. The OPEC member pumps 3.0 million barrels of oil per day.