* Erdogan supporters stand by him as architect of prosperity
* Others outraged by allegations that PM dismisses as untrue
* Erdogan faces stiff local election test in March
By Ayla Jean Yackley and Humeyra Pamuk
ISTANBUL/ANKARA, Feb 26 (Reuters) - Turks in the conservative Istanbul district where Tayyip Erdogan grew up stood defiantly by their prime minister on Wednesday in the face of a voice recording purportedly of him warning his son to hide large sums of money.
The mood contrasted sharply with one of outrage in areas where Erdogan enjoys less support, illustrating the deepening polarisation of a country which his AK Party has ruled since 2002, presiding over a decade of growing prosperity.
Opposition politicians called on Erdogan to resign over the audio tape but he has stood firm, accusing enemies of hacking encrypted state communications to fake a phone call at the time of police raids into a graft inquiry.
"I think this investigation is an effort to remove Erdogan from power by enemies of Turkey. He has made our country stronger, richer, with a say in the world," said clothing shop owner Belguzar Ekmen, 33, who thinks the recordings are fake.
"I can't say whether there has been corruption but I can measure how much our lives have improved, in terms of healthcare, education, transportation," he said in the working class Kasimpasa district on Istanbul's Golden Horn waterway.
In the years before Erdogan came to power, Turkey was plagued by chronic high inflation and economic crises under unstable coalition governments.
The recording, which triggered furious mutual recriminations between political parties in parliament on Tuesday, dominated media coverage which reflected the deep divisions between the pro- and anti-Erdogan camps.
"A shameless montage", said headlines in the pro-government Yeni Safak and Sabah newspapers, echoing Erdogan's condemnation of recordings which he made clear he blamed on a network run by a former ally, Islamic cleric Fethullah Gulen.
"The recording which is shaking Turkey", said a headline in the liberal Radikal daily. "Flee or resign", said the secularist Cumhuriyet, quoting the main opposition leader.
The recording purports to be of Erdogan and his son Bilal discussing how to reduce funds at home to "zero" by distributing them among several businessmen. At one point, the voice supposedly of Bilal says some 30 million euros ($40 million) still remained to be disposed of.
The left-wing BirGun daily printed a transcript of the five recordings over its entire front page without naming Erdogan or Bilal, describing them as a "father" and "son".
"We have never been so corrupt, so rotten. Can you imagine? The prime minister and his family have so much money they don't know where to put it," said company manager Elif, 32, smoking outside a cafe in an upmarket Ankara district.
"I believe the tapes are true. I have always thought that he was stealing," said Hasan Demir, 37, an Ankara cab driver. "But I know people will vote for him again. They distribute coal, rice to poor people. Who can say no to that?"
POPULARITY HOLDING UP
Opinion polls conducted before the recordings surfaced indicate Erdogan's popularity has held up despite the corruption scandal that broke on Dec. 17 with the detention of businessmen close to him and three ministers' sons.
Support for Erdogan is robust in Kasimpasa, with giant posters bearing his image plastered over facades of buildings. At Erdinc Guner's barber shop a small group of men, smoking and drinking tea between haircuts and shaves, all back the AKP.
"He has made up for any corruption with what he has done in services for the people," said Guner, 27. "This country has known far worse in the past. Besides, who else is there to vote for? The AKP's greatest advantage is the sorry state of the opposition."
But the latest recordings may provide a stiffer test of how his support is maintained ahead of March 30 local elections.
Rising political tension has hit Turkish financial markets, but the lira and shares were firmer on Wednesday. The recording have also triggered street protests, but on a much smaller scale than anti-government demonstrations last summer.
Erdogan accuses Gulen of building a "parallel state" using influence in the judiciary and police and has hit back at the corruption probe by reassigning thousands of police officers and hundreds of judges and prosecutors.
He has also pushed through parliament laws tightening control of the judiciary and Internet. The assembly approved adjustments to the Internet law overnight, addressing President Abdullah Gul's concerns about the tighter restrictions.
On Wednesday, Gul approved the judiciary law, deferring to the Constitutional Court on some elements in the legislation which the main opposition CHP has vowed to challenge in the court.
Gulen, through his lawyer, has described the accusation of complicity in the tapes as unjust and contributing to an atmosphere of "hatred and enmity" in Turkish society.
"The sad truth is that we have become nation of warring tribes with very little common narrative, value or reason left," political commentator Mustafa Akyol wrote in the Hurriyet Daily News daily.
"And the mother of all political bombs - at least among what has come out so far - will only deepen our cleavages." (Writing by Daren Butler; Editing by Alison Williams)
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