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* Law is in response to court ruling
* Parliament will be "more democratic", analyst says
By Erik Kirschbaum
BERLIN, Feb 21 (Reuters) - Germany's parliament approved a new election law on Thursday that will help smaller political parties in September's federal poll, when Chancellor Angela Merkel's centre-right Christian Democrats (CDU) are tipped to remain the strongest force.
Merkel's party reluctantly had to draft new legislation after Germany's constitutional court struck down the previous law, which had strengthened the CDU in the last federal election in 2009.
But political analysts said it was difficult to predict whether the change would hurt Merkel's chances of being re-elected if there is a close result on Sept. 22.
Opinion polls put her conservatives at more than 40 percent, well ahead of the main opposition centre-left Social Democrats (SPD).
"The next parliament will be slightly larger and more democratic (due to the new law)," said Everhard Holtmann, a political scientist at the University of Halle.
"The CDU profited the most from the old rules but the SPD had an advantage at times as well."
Germany has a mixed-member proportional voting system under which voters cast two ballots: one directly for a candidate in his or her constituency and the second for a party. This second vote determines the distribution of seats in parliament.
But if a party wins more direct seats in a given state than it would theoretically get according to the percentage of second votes, the Bundestag lower house creates extra "overhang" seats.
The number of overhang seats has risen in recent elections because the two main parties, Merkel's conservatives and the SPD, win virtually all the direct seats in Germany's 299 constituencies but have been getting smaller shares of the "second ballots".
The new law grants smaller parties compensation seats for any overhang seats. It had the backing of four of the five parties in the Bundestag on Thursday, with only the small opposition Left voting against.
In the 2009 election the CDU and their Bavarian allies, the Christian Social Union (CSU), won 24 extra overhang seats. That increased the size of the parliament from 598 to 622.
If the new law had been in place in 2009, there would have been an extra 49 compensation seats awarded to the other parties and would have thus raised the number of lawmakers to 671.
The new 2013 parliament will likely have many more seats due to the overhang seats and the compensation seats. But the court put a limit of 15 overhang mandates on any single party. (Editing by Gareth Jones and Michael Roddy)