* Erdogan expected to announce bid for presidency
* Aides say he will rule with a council of advisors
* Opponents see growing authoritarianism
* Foreign Minister Davutoglu seen as possible PM
By Orhan Coskun and Nick Tattersall
ANKARA/ISTANBUL, June 4 (Reuters) - On the first anniversary of nationwide protests that shook Prime Minster Tayyip Erdogan's rule, barely a thousand anti-government demonstrators marched in Istanbul on Saturday.
Outnumbered by riot police, they were soon sent scurrying into side streets by tear gas and water cannon.
Their scant numbers were an illustration of Erdogan's tightening grip on power despite a year punctuated by street protests, international criticism of his response and allegations of government corruption.
Erdogan, an aide told Turkish television the same day, would remain in power until 2023, having won a presidential election that will be held in August. Changes to the constitution would bestow greater powers on the presidency, the aide predicted.
Interviews with those close to him reveal more detail about the shape of a future Erdogan presidency.
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.
"They will work with Erdogan on important subjects in the presidential palace. You could call them wise men, an advisory council, a shadow cabinet," one senior figure in the ruling AK Party said, with energy policy, the Kurdish peace process and elements of foreign policy likely to be among them.
"The presidency's weight will be felt more in decisions."
Erdogan has yet to announce his candidacy in the August vote but has made no secret of his ambition to run. Those around him say the decision is made.
The results of municipal polls on March 30, when the AK Party won 43 percent of the national vote, suggest a majority in the first round could be within his reach, especially if he secures the support of the Kurdish minority.
"There is no longer a question mark," a senior official from Erdogan's AK Party told Reuters. "Barring an extraordinary situation, Erdogan will announce his candidacy and we expect him to win in the first round."
PLIANT PRIME MINISTER
Erdogan may not yet have engineered the full presidential system he wants for Turkey, but he has made clear that the direct nature of August's vote - previous presidents were appointed by parliament - will enable him to exercise stronger powers than incumbent President Abdullah Gul.
Gul's role has been largely ceremonial. Under the current constitution, presidents have the authority to appoint the prime minister, convene and chair cabinet meetings, and head the national security council and the state supervisory council, which audits public bodies.
"There are many dormant powers that a President Erdogan could use," said Jonathan Friedman, Turkey analyst at London-based global risk consultancy Control Risks.
"Policy in the AK Party has long been made by Erdogan and a small coterie of advisers ... This will continue from (the presidency) - and is why having a pliant successor as prime minister to coordinate MPs and pass laws is key."
Erdogan is barred from standing for a fourth term as prime minister by AK Party rules, which stipulate members of parliament who have served three terms must subsequently be out of office for one.
The regulation, which Erdogan has made clear he is opposed to changing, will also exclude 73 MPs from candidacy in the 2015 parliamentary election, pointing to a significant cabinet reshuffle and major overhaul of the AK Party ranks.
Senior party officials said Erdogan was keen to select a prime minister and new head of the AK Party who would be unencumbered by the three-term limit and able to hold the post for two terms, with current Foreign Minister Ahmet Davutoglu and Deputy Prime Minister Emrullah Isler among the favourites.
Another long-mooted possibility - that Gul would succeed Erdogan as prime minister - now appears unlikely after Gul in April appeared to rule out such a move, saying it would not be "appropriate" for democracy.
Some senior deputies facing a term outside parliamentary office were likely to be among Erdogan's "council of wise men", including Justice Minister Bekir Bozdag, Energy Minister Taner Yildiz and deputy Prime Ministers Bulent Arinc and Besir Atalay.
"Ultimately it is Erdogan who will have the final word in all decisions like this," a senior party official said.
Residents in some areas hung out of windows banging pots and pans - a traditional sign of protest - as demonstrators chanting for Erdogan to resign were chased by riot police on Saturday, but much of the energy has gone from a protest movement which, a year ago, sustained week after week of street demonstrations.
Erdogan has variously dismissed the protesters as vandals, terrorists and anarchists and his party's strong showing in the March polls has reinforced the sense that his rise, despite polarising the country ever further, is unstoppable.
His rhetoric plays on a schism in Turkish society between a western-facing, largely secular segment of the population suspicious of his conservative Islamic ideals and a pious, working-class mass who see him as a hero for returning religious values to public life and driving a decade of growth.
It is a strategy, his opponents say, which sees him deliberately appeal to only the half of the population while ignoring the rest.
Yet even Erdogan's critics acknowledge that he has overseen Turkey's transformation from a financial backwater into one of the world's most dynamic economies, a record which means that a narrow majority of voters - as well as investors - have kept giving him the benefit of the doubt.
"One of the greatest fears is that the government will make populist policies, which will grossly affect growth, but they haven't done that yet," said an Ankara-based diplomat, asking not to be identified so as to speak more freely.
"Erdogan is a smart man, he can turn the bleakest situations to his advantage. He is only focused on the 50 percent. His only point of reference is to stay in power," he said.
"He's as pragmatic as you can get." (Additional reporting by Jonny Hogg in Ankara and Ayla Jean Yackley in Istanbul; Writing by Nick Tattersall; editing by Janet McBride)
Our Standards: The Thomson Reuters Trust Principles.