(Adds atmosphere on the streets, details)
BISSAU, May 12 (Reuters) - Guinea-Bissau's President Jose Mario Vaz sacked Prime Minister Carlos Correia and dissolved his government on Thursday, in a move that threatened to deepen political turmoil in the tiny West African nation.
Correia was appointed prime minister in October - becoming the third person in the post in the span of three months - in an attempt to end a crisis sparked by a row within the ruling PAIGC party.
His dismissal by Vaz now threatens to bring renewed instability.
"Carlos Correia's government is incapable of managing the crisis and creating better political and institutional conditions for (the government's) full function," Vaz said in an address at the presidency.
He called for consultations among political parties to select a prime minister charged with forming a new government.
There was no immediate comment from Correia or his allies. The streets of the capital Bissau remained calm, but security forces were deployed at buildings housing state institutions.
Guinea-Bissau has not seen a democratically elected leader serve a full term since independence from Portugal in 1974.
It has had nine coups or attempted coups since 1980, and the turbulence has helped it become a major transit point for cocaine trafficked from South America to Europe.
As it was slowly emerging from a military takeover in 2012, Guinea-Bissau was once again plunged into an institutional crisis when in August Vaz dismissed his political rival Domingos Simoes Pereira, then serving as prime minister.
The two men, both leading figures in the PAIGC, had been locked in a long-running power struggle exacerbated by their overlapping duties under Bissau's political system.
Correia's compromise appointment did little to heal the rift within the ruling party. The row spilled over into parliament in January when the PAIGC expelled 15 MPs who had called for Pereira's resignation, leading to paralysis in the institution. (Reporting by Alberto Dabo; Writing by Joe Bavier; Editing by Andrew Roche)
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