UPDATE 1-Former Turkish PM Davutoglu sharply criticises Erdogan's AK Party

A former prime minister and close ally of President Tayyip Erdogan strongly criticised the ruling AK Party on Monday, blaming policy changes and an alliance with nationalists for its poor performance in Turkey's local elections last month. In his first major public challenge to Erdogan since leaving office three years ago, Ahmet Davutoglu, himself an AKP member, slammed the party's economic policies, media restrictions and the damage he said it had done to the separation of powers and to institutions.

Davutoglu, a high profile figure in the party, served as prime minister between 2014 and 2016 before falling out with Erdogan. The AKP lost control of the capital Ankara and Turkey's largest city Istanbul in the elections on March 31.

"The election results show that alliance politics have caused harm to our party, both in terms of voter levels and the party's identity," Davutoglu said in a 15-page statement. The AKP and the Nationalist Movement Party (MHP) formed an alliance before presidential and parliamentary elections in June last year in which Erdogan won the executive presidency but saw the level of support for his party fall.

There were no signs of a lira reaction to Davutoglu's statement. The currency had weakened in early trade and stood at 5.8334 against the dollar, from a close of 5.8170 on Friday. In recent years there has been repeated media speculation that prominent AKP politicians such as Davutoglu might break away to establish a new political party, but no such development has materialised and Davutoglu's statement did not refer to any prospect of a new party.

Instead, it stressed the need for reform within. "I call on our party's executives and relevant bodies to assess all these subjects and our future vision sensibly and with cool heads," Davutoglu said. (Reporting by Orhan Coskun; Writing by Daren Butler; Editing by Dominic Evans and Gareth Jones)