* President Joyce Banda says she will not stand in re-run
* Banda rival, electoral body challenge annulment decision
* Protesters smash shops near Blantyre - police
* Dispute over who has powers to annul the vote (Adds high court injunction, SADC election observer reaction)
By Mabvuto Banda and Frank Phiri
LILONGWE/BLANTYRE, May 24 (Reuters) - Malawi's High Court on Saturday issued an injunction stopping President Joyce Banda from interfering in the electoral process, making her earlier decision to annul national elections invalid and raising the risk of post-election violence in the southern African country.
The Malawi Electoral Commission (MEC) suspended the country's election announcement and ordered a re-count of votes, commissioner Chimkwita Phiri said at the national tally centre in Blantyre.
"There's need for a physical check by opening the actual ballot boxes," he said, adding that the number of ballots counted exceeded the number of voters registered.
Banda earlier on Saturday ordered the cancellation of Malawi's elections, citing fraud and "rampant irregularities" in a decision that triggered protests and was challenged by the national electoral authority and a political rival.
Banda, who had been standing for re-election, ordered a new vote within 90 days but said she would no longer be a candidate to guarantee a credible outcome.
Malawi's Electoral Commission (MEC) and one of her main rivals for the presidency who had been leading in the vote count contested her annulment, saying she did not have the constitutional power to cancel the elections.
The court order was granted following an application by lawyers representing the Malawi Electoral Commission (MEC) and Malawi Law Commission and the Democratic Progressive Party (DPP), respectively.
Phiri warned that the law would take its course if ballots were proven to have been tampered with.
Banda's decision led to protests at Limbe outside the commercial hub of Blantyre, where demonstrators smashed shops, police said.
The political crisis broke out four days after a problem-plagued vote, where Banda, southern Africa's first elected female head of state, has seen her popularity eroded by a corruption scandal.
"I, Dr. Joyce Banda ... hereby issue this Proclamation nullifying all on-going processes in relation to the 2014 Tripartite Elections," Banda said in her broadcast.
She cited "fraudulent and rampant irregularities" and ordered that voting be repeated within 90 days.
Shortly before Banda's announcement, the electoral commission released preliminary results showing opposition DPP candidate Peter Mutharika leading with 42 percent of the vote, followed by Banda with 23 percent. This was based on 30 percent of the total votes counted.
"There is no legal basis for stopping the election. We have become a laughing stock and the sooner it ends, the better for us," Mutharika told a news conference, as his supporters took to the streets in Limbe.
"I appeal to the President to ask people to be calm and I hope she abandons the path she is taking because we don't need to take this country on the path of violence," Mutharika added.
DISPUTE OVER CONSTITUTIONAL POWERS
MEC chairman Maxon Mbendera challenged the annulment, saying only the electoral authority had the legal power to annul the elections.
Banda said she would not participate as a presidential candidate in the election re-run.
"I have done this to allow that Malawians are given an opportunity to freely and fairly express their will in choosing their leaders in a free, fair, transparent and credible manner," she said.
Tuesday's poll had been plagued by problems from the outset, with voting materials turning up hours late and ballot papers being sent to the wrong end of the country, infuriating voters.
Organisers had to extend voting in some urban areas into a second day and initial counting was held up by a lack of lighting and generators at polling stations.
Despite this, the Southern African Development Community (SADC) Election Observer mission has declared the May 20 poll as generally "free, peaceful and credible".
"While concerns were noted, these were not of such gravity as to affect the integrity of the electoral process," said Netumbwa Nandi Ndaitwa, head of the mission and Namibia's Minister of Foreign Affairs.
Banda enjoyed huge goodwill when she came to power two years ago, but her popularity waned after she was forced to impose austerity measures, including a devaluation, to stabilise the economy.
Her administration was hit by a $15 million corruption scandal, dubbed 'Cashgate', after large amounts of cash were discovered in the car of a senior government official. (Writing by Zandi Shabalala, editing by David Evans)
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