By Samia Errazzouki

RABAT (Reuters) - Public spending in Morocco is being put at risk by the country's inability to form a government nearly five months after elections, opposition lawmakers said.

The Islamist Justice and Development Party (PJD), which led the last coalition government, increased its share of parliamentary seats at October's election. But it fell out with its former government partner, the conservative Istiqlal party, over economic reforms, and has been unable to strike a new deal.

The 2017 budget, which should have been approved by parliament by the end of 2016, cannot be passed until a government is in place.

"There are already complaints about funds not being allocated in certain branches of the public sector," Nourdin Moudian, head of Istiqlal's parliamentary group, told Reuters.

"It is the Moroccan people who will ultimately suffer the most from this delay."

A government source said that while the political deadlock had "slowed things down", it would not would stop the state functioning because in the absence of a budget approved by parliament there are decrees that allow for ministries to work.

The PJD first came to power in 2011 after "Arab Spring" protests prompted King Mohammed VI to call a referendum on constitutional reform, granting more powers to the elected government.

The king re-appointed PJD leader Abdelilah Benkirane prime minister after the election but his talks with Aziz Akhannouch, leader of the center-right National Rally of Independence (RNI) and a friend of the king, have stalled.

RNI has been trying to impose a bloc of four minor parties into the coalition, which would weaken the Islamists' sway.

"Our position on the government is clear ... We want a powerful government," Akhannouch told a party conference, justifying his insistence on including the minor parties, particularly the Socialist Union of Popular Forces (USFP).

In January, USFP member Habib El Malki was elected parliament chief, despite the party coming sixth in the election with just 20 out of 395 seats in parliament.

But Prime Minister Benkarine has ruled out the USFP joining the government.

"Enough. You won 20 seats and the parliamentary presidency? That's enough," Benkirane said in remarks to PJD members last month.

Issandr El Amrani, director of International Crisis Group’s North Africa project, said since 2011 there had been a backlash against Islamist parties and, although still popular among a large minority of Moroccans, the PJD is weaker now.

"The PJD is in a less of a strong position than it was in 2011 and the palace has more cards to push for its dilution,” he said.

While the palace says it maintains equal distance from all parties and does not interfere, local media have speculated over a possible royal intervention to help form a new government.

"It's not a royal intervention, but the prime minister will present a report to the king," Slimane Amrani, PJD vice-secretary general, told Reuters when asked about the party's position on the deadlock.

(Editing by Patrick Markey and Robin Pomeroy)