UPDATE 3-Algeria army chief backs interim leader, vows to tackle "corrupt" ruling elite

Algeria's army chief of staff said he expects the judiciary to prosecute what protesters call the corrupt ruling elite and he pledged to support a transition expected to lead to elections, state television reported. Lieutenant General Gaid Salah's comments were the strongest hint yet that the military will play its traditional role as kingmaker following weeks of protests, which spurred veteran leader Abdelaziz Bouteflika to resign after 20 years in office.

"The army will meet the people's demands," said Salah, addressing officers and soldiers at a military base. ”The judiciary has recovered its prerogative and can work freely.” He referred to the ruling caste as "the gang", a term people used in large-scale protests to describe Bouteflika's inner circle which included retired intelligence officials, oligarchs and members of the ruling National Liberation Front (FLN), and some veterans of the 1954-62 war of independence against France.

The army chief urged the judiciary to reopen a corruption case against oil and gas giant Sonatrach, an object of resentment for many Algerians who accuse their leaders of stealing the nation's wealth. In 2012, a series of scandals shook Sonatrach, which was tightly controlled by Bouteflika loyalists. Its CEO and other executives were imprisoned.

CAUTIOUS ARMY CHIEF The army patiently observed the unrest, which started on Feb. 22, from the sidelines. Then Salah intervened, declaring the 82-year-old Bouteflika - rarely seen in public since suffering a stroke in 2013 - unfit to rule.

If Bouteflika's efforts to extend his fourth term had paid off despite growing grassroots opposition, that would have put the military under pressure to restore order, instead of focusing on swaying politics from the shadows. "It is unreasonable to manage the transition period without institutions that organise and oversee this operation," said Salah, lending support to interim leaders.

Algeria's generals are highly sensitive to instability. In the early 1990s, the army cancelled an election that Islamists were poised to win, triggering a civil war that killed an estimated 200,000 people. The army has faced little resistance from protesters whose fury has been directed at what is described as the fortress - an FLN-associated old guard that has been entrenched for decades.

But some Algerians were wary after hearing Salah's pledges. "We are happy with the army urging the prosecution of corrupt people. But we will not give up on other demands," said 25-year-old student Nabil Arrachi. Ennahar TV reported that the interior ministry had issued licenses for 10 new political parties. While Algeria has many parties, the move signaled flexibility.

On Tuesday, parliament named upper house chairman Abdelkader Bensalah as interim president. The move failed to placate protesters, who gathered in Algiers shortly afterwards in the thousands to demand sweeping democratic reforms. Bensalah said he would organise free elections that are expected to be held within 90 days.

(Additional reporting by Aziz El Yaakoubi in Dubai Writing by Michael Georgy Editing by Mark Heinrich)