By Prak Chan Thul

PHNOM PENH (Reuters) - A critic of the Cambodian government was shot dead in the capital on Sunday at a time of rising political tension between Prime Minister Hun Sen and an opposition hoping to challenge his grip on power in elections as soon as next year.

Kem Ley, 46, the head of a grassroots advocacy group, "Khmer for Khmer", was shot two times in a store at a gas station in Phnom Penh, police said.

"Kem Ley was shot dead," Eng Hy, a spokesman for the National Military Police, told Reuters, but declined to provide further details.

A 38-year old suspect has been arrested, and has admitted to killing Kem Ley in a dispute over money, Cambodia's Interior Ministry said in a statement.

On social media, Hun Sen condemned the attack, ordered an investigation into the killing and urged authorities to clamp down on firearms and explosives.

"I pay my condolences over the death of Kem Ley, who was shot by a gunman," Hun Sen said on his Facebook page. "I condemn this brutal act."

Videos of the attacker's confession spread widely on social media soon after the killing. Reuters was unable to independently verify the video.

In a news conference, police brought in the suspect before journalists. The suspect, who had blood on his head and shoulders, was identified as Chuop Somlap, which means "meet to kill".

"It's hard to believe that this is his name, it may be fake," Phnom Penh's Police Chief Chuon Sovann said. "We continue our investigation into people who are behind this."

A Reuters witness saw Kem Ley's body lying in a pool of blood on the floor of the store, with hundreds of onlookers gathered around it. A water bottle and a cellphone were strewn nearby. Kem Ley's pregnant wife, Pou Rachana, wept.

"I don't know what happened, somebody just called me and said that he's shot," Pou Rachana told Reuters.

"He's already dead," she added, as investigators kept her away from the body of her husband.

Thousands of supporters formed a procession as Kem Ley's body was taken to a local pagoda inside his own car, covered with flowers, fruits and incenses.

The United States embassy in Phnom Penh said Kem Ley was one of Cambodia's most prominent political analysts while Britain's envoy called his death a serious loss to the country.

Political tension is growing between Hun Sen and the opposition Cambodia National Rescue Party (CNRP), which wants to take on the prime minister in local elections in 2017 and a general election in 2018.

A popular political commentator and researcher, Kem Ley was frequently critical of Hun Sen's administration, having most recently commented on a report by anti-corruption pressure group Global Witness.

The report, which accused the prime minister and his family of having amassed $200 million in business interests, has been dismissed by a government spokesman as propaganda.

(Reporting by Prak Chan Thul; Editing by Clarence Fernandez and Ryan Woo)