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UPDATE 3-Czech coalition party withdraws threat to quit

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(Releads, adds LIDEM chief quote, background)

By Robert Muller

PRAGUE, Jan 8 (Reuters) - A junior party in the Czech Republic's governing coalition on Tuesday withdrew its threat to quit, averting a crisis that could have brought down Prime Minister Petr Necas's administration.

LIDEM party chief Karolina Peake said its leadership had agreed to cancel a resolution requiring its ministers to resign by Jan. 10. The motion was adopted last month after Necas sacked Peake as defence minister days after her appointment.

Persistent infighting among the three parties in Necas's centre-right coalition has cut its support to just 98 of parliament's 200 seats.

It has managed to push through crucial votes with the help of a handful of independent lawmakers but the departure of the small, centrist LIDEM could have caused it to collapse halfway through its four-year term.

"Both the parliamentary caucus and the council of the party have agreed to hear out the request by the coalition partners that we continue in the government," Peake told a news conference.

Earlier on Tuesday officials from the other two coalition parties - Necas' Civic Democrats and conservative TOP09 - said they wanted LIDEM to continue in the cabinet.

Peake said LIDEM now wanted to work with the two parties on a new coalition agreement to include measures such as a pledge not to raise taxes any further, following a repeated increase in value added tax (VAT) and a new tax for high earners, and to make savings by cutting back on bureaucracy.

Necas and his ruling partners started their term in 2010 with a strong majority, raising hopes of sweeping economic reforms. But its parliamentary numbers have shrunk after a series of coalition rifts, a situation exacerbated by a recession that has eroded the ruling parties' popularity.

The government has raised taxes and cut welfare spending to slash a budget deficit that swelled in 2009 when the global economic crisis hit the Czechs' export-dependent economy.

The measures helped push the country back into recession last year, and now the government expects growth of just 0.7 percent in 2013. (Writing by Jana Mlcochova; Editing by Pravin Char)