PRAGUE (Reuters) - Czech Prime Minister Andrej Babis is rushing to form a new government, possibly by the end of February, before a new presidential term begins.

FILE PHOTO: Czech Prime Minister Andrej Babis attends a parliamentary session during a confidence vote for the newly appointed government he leads, in Prague, Czech Republic January 16, 2018. REUTERS/David W Cerny

The two candidates in a Jan. 26-27 run-off presidential vote have diametrically opposed views on Babis, the country’s second-richest person, and whether he should serve as premier while facing a police investigation into European Union subsidy fraud.

Babis’ minority cabinet lost a parliamentary confidence vote this week, mainly because of allegations that, as a businessman a decade ago, he hid ownership of a firm to get a 2 million euro subsidy meant for small businesses. He denies this.

Despite the scandal, which has hindered Babis since last year, his ANO party won three times as many votes as its nearest rival in a parliamentary election last October.

Babis said in an interview with the daily Mlada Fronta Dnes on Thursday that a political crisis could arise if he does not get a second chance to form a government.

The situation is complicated by a tight presidential race between incumbent Milos Zeman, who has promised to give Babis a second try, and academic Jiri Drahos, who says it would be unacceptable to have a prime minister facing police charges.

“Certainly if we do not get a second attempt from President Zeman and the winner was Mr Drahos, who has said he would not nominate me, detribalization and a crisis could arise,” Babis told the newspaper.

Babis was charged in the subsidy case but regained immunity from prosecution with his re-election. Lawmakers vote on Friday on whether to lift that immunity and are expected to do so.

Babis is also set to present his resignation to Zeman on Jan. 24.

With new coalition talks already underway, ANO is talking to three parties: the Civic Democrats, Social Democrats and Christian Democrats. All insist Babis stand aside. He has said such an option is a possibility but his party rejects this.

Babis said he would also lead talks with the far-right, anti-NATO and anti-EU SPD party and the far-left Communists for potential support of an ANO minority cabinet.

In a separate interview with Pravo newspaper on Thursday, Drahos said he would advise Babis to step aside to help resolve the standoff and would consult leaders of political parties to find out what government could be formed with majority backing.

POLARIZING FIGURES

Investors have brushed aside the turmoil as the economy chugs along and unemployment sits at a two-decade low. ANO’s support continues to rise in polls.

The anti-establishment party won October’s election with pledges to fight political corruption, raise public investment, modernize government and run the state more efficiently.

Babis and Zeman are among the most popular politicians in the largely euroskeptic country that has battled the EU over taking in migrants. The two have an uneasy alliance.

Babis backs Zeman in the presidential vote but after the first round said the president should distance himself from some advisers and clearly state he is not aiming to re-orientate the country to eastern powers at the expense of western allies.

Zeman has been a polarizing figure in his first term, which ends on March 7, for leaning toward far-right views on migration, his brash style, and focusing on building relations with China and Russia.

Presidential campaigning had been low-key but on Thursday the first attack ad appeared in some national newspapers, run by a group supporting Zeman.

“Stop immigrants and Drahos. This country is ours!” it said.