PODGORICA (Reuters) - Montenegro's ruling Democratic Party of Socialists proposed a new candidate for premier on Wednesday to woo allies after losing its majority in an Oct. 16 election, with rivals refusing to deal with veteran DPS leader Milo Djukanovic.

The DPS came out ahead but was deserted by its key coalition ally, the Social Democratic Party (SDP) led by Ranko Krivokapic before the election and the vote was overshadowed by allegations of ballot fraud and the arrest on election day of 20 Serbian citizens accused of plotting armed attacks against the state.

Major opposition parties have rejected any talks with Djukanovic, whom they accuse of corruption and authoritarianism and of exaggerating the scale of supposed influence of Russian and nationalist Serb groups in the country to sway the vote.

Over the 25 years he has spent at the pinnacle of the tiny Adriatic state's politics, Djukanovic has oscillated between the presidency and the prime ministership with only two short stints out of power in 2006 and 2010.

On Wednesday, the DPS nominated Djukanovic's deputy and close ally, Dusko Markovic, as prime minister-designate to seek a mandate from President Filip Vujanovic to form a government, though the DPS said Djukanovic would remain party chief.

"Djukanovic will personally provide strong support to Markovic and the future government," the DPS said in a statement. It remained unclear whether other parties seen as candidates for a coalition would accept Markovic as a potential partner.

The DPS hopes to secure a two-seat majority together with the small Social Democracy party (SDCG) and parties representing minorities to form the government.

Markovic, 58, is one of Djukanovic's most trusted allies. He also serves as the deputy president of the DPS and was previously the head of Montenegro's state security agency.

During the campaign, Djukanovic presented the election as a chance for Montenegro, with a population of 620,000, to either join NATO and the EU or pursue deeper ties with traditional allies in Serbia and Russia.

(Reporting by Petar Komnenic; Writing by Aleksandar Vasovi; Editing by Thomas Escritt and Mark Heinrich)