OXON HILL, Maryland (Reuters) - Republican Party leaders refused Michael Steele a new term as party chairman on Friday and turned to a low-key insider to erase a $20 million debt and unify Republicans for the 2012 presidential election.

Slideshow ( 4 images )

Wisconsin Republican Party chairman Reince Priebus, chosen to head the Republican National Committee after Steele fell behind in the voting and then dropped out of the running, takes over an organization in turmoil.

On the seventh round of voting, Priebus, who had been a close associate of Steele, won 97 votes from the 168 party members, more than enough to win the chairmanship for the next two years, as it gears up to unseat Democratic President Barack Obama in 2012.

Steele was the Republican National Committee’s first black leader. He was rejected despite presiding over significant gains by Republicans in the November 2 congressional elections in which they won control of the House of Representatives and picked up seats in the Senate.

The new chairman will have the goal of reconnecting with donors who abandoned the RNC in the 2010 elections and working with the party’s presidential nominee in 2012.

The gaffe-prone Steele is leaving the party at least $20 million in debt and many donors disillusioned. Priebus said he would like to raise $400 million for the 2012 election.

“We need to raise a whole lot of money, come together as a party, build on the success and the victories that we just had in 2010 (and) rebuild our credibility as a party,” Priebus told reporters after his victory.

Steele abandoned the race after four rounds of voting showed that he was losing support. He applauded the election gains that had been made during his tenure in giving up his campaign.

“It’s very clear that the party wants to do something a little different,” Steele said. “At this time, I will step aside for others to lead.”

Party leaders made clear their dissatisfaction with Steele, who was criticized as being too hungry for the spotlight, and said they were seeking someone who could do the hard work of raising money and play a more behind-the-scenes role.

“The RNC has lost credibility with donors, both large and small,” Tennessee Republican Party chairman Chris Devaney said in nominating Missouri Republican Ann Wagner to lead the RNC.

Priebus vowed to earn the trust of party members. There has been some skepticism of him because he was RNC general counsel under Steele and part of Steele’s inner circle.

Wagner, who gave up her bid for Steele’s job after six rounds, called for healing in the party organization.

“It is time that this committee heal and unify and remember that it is our job to beat Barack Obama in 2012,” she said.

Michigan’s Saul Anuzis and long-time party operative Maria Cino, who had the support of House Speaker John Boehner, also lost out in the race for Steele’s job.