CHISINAU/KIEV (Reuters) - Moldovan parties on Saturday agreed to form a government and appoint Maia Sandu, a former education minister and World Bank adviser, as prime minister with a mandate to curb the power of oligarchs in one of Europe’s poorest countries.

FILE PHOTO: Moldova's Action and Solidarity Party presidential candidate Maia Sandu speaks to the media after voting in a presidential election in Chisinau, Moldova, November 13, 2016. REUTERS/Gleb Garanich/File Photo

Sandu’s pro-European Union ACUM bloc formed a working coalition with the Russian-backed Socialist party, breaking months of deadlock after a parliamentary election in February produced a hung parliament.

But their alliance set up a clash with the Democratic Party of Moldova and the Constitutional Court, which earlier said parliament should be dissolved and any decision taken by lawmakers on forming a government would be void.

Sandu is a fierce opponent of the Democratic Party, which formed the last government, and its leader Vladimir Plahotniuc, a wealthy tycoon she accuses of corruption and abuse of power.

Plahotniuc was the target of street protests but in 2016 he told Reuters that negative perceptions about him were down to lies spread by his opponents after he entered politics.

“Injustice has come to an end today in Moldova,” Sandu said. “Today begins the process of the purification of Moldova.”

The Democrats accuse ACUM and the Socialists of usurping power at Russia’s behest and deputy chairman Andrian Candu said they would challenge the formation of the government in court.

In a parliament session convened on Saturday, Sandu and the Socialists also signed a declaration calling Moldova a “captured state”.

A nation of 3.5 million, the tiny ex-Soviet republic is squeezed between Ukraine and EU member Romania. Politically divided, some of its voters favor closer ties with the EU or even reunification with Romania, while others prefer closer ties to Russia.

“THEFT OF THE CENTURY”

Moldova has been dogged by political instability and corruption, especially since a scandal known as the “theft of the century” emerged in 2014-2015 where $1 billion, around an eighth of its economic output, was pilfered from three banks.

“We must free the captured state institutions, depoliticize the Constitutional Court, get rid of the oligarchs,” said Andrei Nastase, who leads ACUM alongside Sandu.

“We will form a government today.”

Candu told Reuters by phone the Socialists had ignored a ruling by the Constitutional Court stipulating that if a government was not formed by June 7, there would have to be another election.

“The Russian Federation is trying to force the creation of the pro-Russian government, illegally, in Moldova,” Candu said.

He said Moldovan President Igor Dodon, who used to be the Socialist party chief, had approached Candu’s Democratic Party with a coalition offer on conditions set by Moscow, including turning Moldova into a federal state.

Opponents of the move say it would give the separatist region of Transdniestria, which wants to merge with Russia, an outsize say in how Moldova is run.

“To all these conditions, we said ‘no’. We are not betraying our country,” Candu said. “And rather we go for the snap elections in the future than to create a coalition and a majority and to empower a government under such conditions.”

Dodon has said the idea to federalize Moldova had come from Plahotniuc, which the latter had offered Moscow in exchange for Russian criminal cases against him being dropped.

Also on Saturday, lawmakers voted to appoint the Socialist party’s Zinaida Greceanii as the new parliament speaker. The Constitutional Court declared the appointment illegal.

Ambassadors from Russia, the European Union and the United States observed proceedings in the parliament.

“The United States supports efforts by Moldova’s political parties to negotiate an agreement and overcome the ongoing political impasse,” the U.S. embassy said.

The Russian Embassy urged all responsible political forces to avoid destabilization, adding: “We support efforts by parliamentary parties to form a functioning coalition and create a government capable of ensuring lasting civil peace and sustainable development of Moldova in line with established democratic norms.”

The EU forged a deal on closer trade and political ties with Moldova in 2014 and showered it with aid but it has become increasingly critical of Chisinau’s track record on reforms.