* Counting under way, Socialists seen leading

* PM Berisha bidding for third term

* West concerned over democracy in NATO member Albania

By Benet Koleka

TIRANA, June 24 (Reuters) - Albania's opposition Socialist Party took the lead in early counting on Monday after a tense election watched closely by Western allies worried over democracy in the NATO country.

Both the Socialists and the ruling Democratic Party claimed victory within minutes of polls closing late on Sunday, raising the spectre of a disputed result in the Adriatic nation.

The Central Election Commission was initially silent, and only a trickle of results had come in by Monday morning. But the trend pointed to victory for the Socialist-led coalition of Tirana's former mayor, Edi Rama.

With about 10 percent of the vote counted in most regions, Rama was ahead in the capital, Tirana, and the large regions of Fier, Berat, Elbasan, Korce, Vlore and Gjirokaster.

Victory for Rama would deny Prime Minister Sali Berisha, Albania's dominant figure since the fall of communist rule in 1991, an unprecedented third four-year term.

At 68, defeat could spell the end of his political career. He brought the country into NATO and onto the first rung of EU membership but is criticised by opponents for undermining democracy and allowing graft and organised crime to flourish.

Rama says he will reboot Albania's stalled bid to join the European Union and transplant his success in reviving the capital to the rest of the rundown country. He has talked of introducing a progressive tax rate and easing the burden on small businesses.

Sunday evening's claim and counter-claim raised fears of a disputed result in a country that has seen post-election confrontation before.

Since 1991, the impoverished country of 2.8 million people has never held an election deemed fully free and fair, and failure again would further set back its ambitions to join the European Union.

Concern was high after a political row left the Central Election Commission short-staffed and unable to certify the result.

CONFRONTATION

A shooting during the election in the northwestern Lac region, in which an opposition activist was killed and a Democrat candidate wounded, deepened fears of unrest. The police said they had not yet arrested anyone.

"Will the world accept the election?," asked a newspaper seller in central Tirana who gave her name as Naze.

"A person killed on voting day is regrettable, but that is nothing compared to what some people feared," she said.

Foreign election observers from the Organisation for Security and Cooperation in Europe (OSCE) scheduled a news conference for 5 p.m. (1500 GMT).

"Important that all parties in Albania fully respect the result of their parliamentary election today," Swedish Foreign Minister Carl Bildt said on Twitter.

Rama lost the last parliamentary election in 2009 and four people were shot dead by security forces when opposition protesters took to the streets.

"Our data says we won over the forces of destruction," the towering former basketball player and artist told cheering supporters at his party headquarters.

Berisha has dominated Albanian political life since the collapse of its Stalinist rule triggered a breakneck and sometimes violent transition to capitalism.

The Socialists and Democrats differ little on Albania's goal of joining the European Union or its pro-Western policy. But their confrontational relationship does not sit easy with Brussels or Albania's NATO allies.

Albania applied to join the 27-nation EU four years ago but has not yet been made a candidate for membership due to concerns over the state of its democracy. (Writing by Matt Robinson; editing by Elizabeth Piper)

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