* Turnout down, reflecting widespread frustration
* Thaci bidding for third term as prime minister
* Voters angry over poverty, corruption (Updates with early official count, adds background)
By Fatos Bytyci and Matt Robinson
PRISTINA, June 8 (Reuters) - Kosovo's ruling party of Prime Minister Hashim Thaci was narrowly ahead in an election on Sunday marked by low turnout among Kosovars frustrated with widespread poverty and corruption.
If early official counts are mirrored elsewhere, Thaci is likely to form a coalition government with smaller parties and ethnic Serbs to secure a third four-year term at the helm of the young Balkan country.
Turnout of only 43 percent, however, reflected widespread frustration among Kosovo's 1.8 million people at the lack of progress made since Thaci presided over the territory's secession from Serbia in 2008.
An exit poll conducted by the Gani Bobi social research institute put Thaci's Democratic Party of Kosovo (PDK) on 33 percent, just ahead of the opposition Democratic League of Kosovo (LDK) on 30 percent.
Kosovo's central election commission, with about 7 percent of votes counted, had the PDK on 32 percent and LDK on 26 percent. A partial vote count by the Democracy in Action non-governmental group gave the PDK a similar margin of victory.
Fifteen years since breaking away in war, Kosovo ranks among Europe's poorest countries. A third of the workforce is unemployed and corruption is rife.
"This old class of politician has been around for 15 years and had plenty of time to profit," said Muhamet Maqastena, a trader in the capital, Pristina. "It's time for them to go and let the young, educated people govern us."
WAR CRIMES INVESTIGATION
The next government will come under immediate pressure from the West to heed the findings of a war crimes investigation that threatens to ensnare Thaci's former comrades-in-arms.
A special European Union task force is expected within weeks to issue the findings of an investigation into allegations that Kosovo's guerrilla army harvested organs from Serb prisoners of war and sold them on the black market during a 1998-99 conflict.
The investigation followed a 2011 report by Council of Europe rapporteur Dick Marty, which pointed the finger at Thaci and other ex-rebels, including four senior members of the prime minister's Democratic Party of Kosovo (PDK) and candidates for parliament.
Thaci has dismissed the allegations as an outrage, a bid to tarnish the Kosovo Albanian fight for freedom that eventually won NATO air support.
The West wants a court set up abroad to hear the case because of witness intimidation in Kosovo and a graft-riddled legal system. That will require changes to the law and constitution.
Thaci was one of the leaders of the Kosovo Liberation Army that took up arms in the late 1990s to break free from the repressive rule of Serbia under strongman Slobodan Milosevic.
NATO intervened in 1999 with 78 days of air strikes against Serbia, trying to halt the massacre and mass expulsion of Kosovo Albanians by Serbian forces waging a counter-insurgency.
YOUNG JOBSEEKERS
Kosovo declared independence almost a decade later and has been recognised by more than 100 countries, but not Serbia or its big-power backer Russia, which is blocking the young state's accession to the United Nations.
Its economy is forecast to grow by at least 3 percent this year, driven by construction and cash sent home by Albanians working abroad. Even that, however, is not enough to absorb the thousands of jobseekers entering the workforce every year in what is Europe's youngest society.
Two months before the election, Thaci's government raised public sector wages, pensions and social welfare benefits two months ago by 25 percent. That directly affects 240,000 teachers, doctors, police officers, pensioners and others, and even more indirectly.
He has promised to do the same every year if given a new term. At 43 percent, turnout was down on the past two elections in 2007 band 2010, when 54 percent and 48 percent of eligible voters cast their ballots.
Valbona Bajraktari, a 37-year-old unemployed woman, said her expectations were not high. "The only thing I want is for them not to steal or to hire their aunts," she told Reuters. (Editing by David Goodman)
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