* Presidency seen crowning Erdogan's transformation of Turkey
* Erdogan says entered politics "for Allah"
* Prime minister seen winning August election (Adds opposition comment, details, background)
By Jonny Hogg and Orhan Coskun
ANKARA, July 1 (Reuters) - Tayyip Erdogan declared his candidacy on Tuesday for a more powerful presidency which rivals fear may entrench authoritarian rule and supporters, especially conservative Muslims, see as the crowning prize in his drive to reshape NATO member Turkey.
Supporters of his ruling Islamist-rooted AK Party cheered, clapped and sang pro-Erdogan songs after deputy chairman Mehmet Ali Sahin announced the prime minister's widely expected candidacy in the August presidential election.
"We entered politics for Allah, we entered politics for the people," Erdogan told a crowd of thousands in an auditorium in the capital Ankara, where the party faithful erupted into chants of "Turkey is proud of you".
Erdogan, hugely popular despite a graft scandal he blamed on traitors and terrorists, is very likely to win the August vote.
In so doing, he would bolster his executive powers after 11 years as prime minister that have seen him subdue a secularist judiciary and civil service and tame a once all-powerful army. He has long sought a powerful presidency to escape the vagueries and potential obstacles of the current paliamentary system.
Critics see in this a move to cast off remaining checks on his power.
"They called us regressive because we said our prayers," Erdogan said in a speech dotted with references to his faith.
"They said we weren't good enough to be a village leader, that we couldn't be prime minister, that we couldn't be elected president. They didn't even deign to see us as an equal person in the eyes of the state."
Erdogan, 60, offers himself as champion of a conservative religious population treated for generations as second class citizens. A new breed of Islamic entrepreneur has arisen, the headscarf, symbol of female Islamic piety, was seen for the first time in state institutions. Islamist rhetoric that 15 years ago won Erdogan a jail term is now commonplace.
The enemy identified now in countless Erdogan speeches as "they" is a secularist establishment that dominated Turkey until he came to power. But many secular Turks in the broader population may increasingly feel the finger pointing at them.
Kemal Kilicdaroglu, leader of the main opposition Republican People's Party, said Erdogan was polarising society.
"Someone who does not believe in the separation of powers cannot be a president," Kilicdaroglu told members of his secularist party in parliament. "Someone who does not believe in the supremacy of law, whose sense of justice has not developed cannot be a presidential candidate."
DWINDLING POPULARITY IN WEST
The presidency Erdogan would assume if elected would in theory differ little from the largely ceremonial post occupied by incumbent Abdullah Gul.
But his personal authority and the fact of being elected by the people, not parliament, would in effect allow a reading of the constitution that grants broader powers. The possibility exists that his exercise of those powers could be questioned on constitutional grounds but a challenge could prove difficult.
The candidates' list for the election testifies to dramatic change wrought in Turkey by his premiership, an old secularist elite yielding to two men of Islamist pedigree and a third from a long-suppressed Kurdish minority. No one campaigns now on a secularist, anti-Islamist platform, once the only permissible step to power.
Erdogan's Turkey had been held up in the West as a worthy example of a functioning Islamic democracy, on the edge of a volatile Middle East.
He has also brought within reach a possible end to a 30-year Kurdish insurgency which has killed 40,000 people and vowed in his speech to maintain a peace process with militants in which he has invested considerable political capital.
He has presided over a decade of strong economic growth and rising living standards, bringing stability to a country which for decades was hamstrung by financial crises, ineffective coalitions and a series of military coups.
Whatever his popularity at home, however, in the West it has dwindled. Last year saw a harsh crackdown on anti-government protests and a purge of the judiciary and police as he fights graft allegations against his inner circle which he has portrayed as part of a foreign-backed plot to unseat him.
Political opponents have been branded traitors and terrorists.
"He will bring to the office his own style of aggressively defiant government, typified by micro-management, bullying of opponents and a penchant for polarization rather than conciliation," said Wolfango Piccoli of risk research firm Teneo Intelligence.
"At best, this setup will preclude Turkey from adopting a more liberal and inclusive understanding of democracy; at worst, it will further push the country towards authoritarian governance," he said.
Critics accuse Erdogan of using a power struggle with U.S.-based Islamic cleric Fethullah Gulen as a cover to entrench dictatorial powers and create an inner state apparatus based on close personal loyalties.
During his speech he vowed to step up his battle against what he terms Gulen's "parallel state" within the judiciary and state organs, which he accuses of plotting to unseat him.
Erdogan's chief adviser Yalcin Akdogan commmented: "Erdogan will not use any power which is not in the constitution. He will exercise every power in the constitution appropriately.
"What is expected of the president in the new period is that all state organs act together towards the same goal in a harmonious way according to state policies," he wrote in Star newspaper.
Aides have said he would rule with a "council of wise men" - made up partly of close allies in his current cabinet - would help oversee top government business, senior officials told Reuters, effectively relegating some ministries to technical and bureaucratic roles.
Parliamentary elections next year could give AK a two thirds majority allowing him to consolidate even those powers.
A senior AK Party official told Reuters Erdogan as president would act in harmony with the government, acting together with the prime minister as the joint head of the executive. Current Foreign Minister Ahmet Davutoglu is regarded as a favourite to take over as prime minister. (Additional reporting by Tulay Karadeniz, Humeyra Pamuk and Ayla Jean Yackley; Writing by Daren Butler; editing by Ralph Boulton)