DILI (AFP) -- East Timor's ruling Fretilin party congress opened Wednesday with the prime minister expected to face a leadership challenge ahead of next year's polls following recent serious unrest.

About 50 armed police guarded the sports complex in Dili, capital of the world's youngest nation, where the three-day meeting was taking place.

Senior members of Fretilin, which began as a resistance movement fighting for East Timor's independence from Jakarta, accuse Prime Minister Mari Alkatiri of mishandling a riot last month which left five dead, prompted some 21,000 people to flee Dili and inflamed tensions in the tiny country.

Vincent Ximenes, who sits on the party's 11-member political committee, predicted that the threat of further violence, originally stoked by a protest held by nearly 600 sacked soldiers -- known as "petitioners" -- will dissipate with new leaders in place.

"I think even the petitioners who went to the mountains are still waiting for the outcome of the Fretilin congress and are ready to negotiate with a new Fretilin. We have already had some preliminary contacts," he told AFP.

The April 28 riot was the worst unrest to hit Asia's poorest nation since it voted for independence from Indonesian rule in 1999. It was followed shortly afterwards by a mob attack on a government office outside Dili that led to the death of one police officer.

The threat of further instability prompted Australia to send amphibious Navy troop transport ships towards East Timorese waters last week.

Ximenes said Alkatiri, who enjoys only about 20 percent support within the party, will not withstand a planned leadership challenge.

As secretary-general, Alkatiri is facing a challenge from the country's ambassador to the United Nations, Jose Luis Guterres, while Fretilin president Francisco Lu Olo will be challenged by Ecidio de Jesus, a regional secretary.

Alkatiri said last week he would step down as prime minister on Saturday if he was not re-elected.

Aside from the recent bloodshed, Alkatiri has come under fire for a myriad of problems gripping East Timor, such as rampant unemployment and widespread poverty.

However some predict Alkatiri may survive the challenge.

"He still enjoys strong support from the party. The delegates from the districts, especially from east, still provide strong support for him," said Virgilio Guterres, director of the state broadcaster.

Calm has returned to the streets of Dili since the riot, but persistent rumors of more violence -- which spread quickly via mobile phone text messages -- leave the situation unpredictable.

"The situation is still very tense," said Martinho Gusmao da Silva, from the Catholic Church's peace and justice commission.

The government says it has begun negotiations with around two-thirds of the sacked soldiers and has formed a commission to investigate their claims of ethnic bias in the armed forces.

But a group of over 100 soldiers remain in the hills outside Dili, prompting rumors to swirl that they might launch an attack, said Gusmao da Silva.

The state broadcaster's Guterres however said he doubted these troops would instigate any kind of violence, as they and their leader Gastao Salsinha promised not to in an interview broadcast on Monday.

However, he warned fighting could break out among unarmed, disenchanted youths at any time.

"Violence using stones, hands -- it can take place any time," he said.

He said much of the fear of unrest could be headed off simply by better communication and coordination from the government.

"It is a result of no communication between leaders -- with the president and with the parliament there is no communication. Also within Fretilin, they don't communicate and they keep mounting power struggles," Guterres said.

East Timor is scheduled to hold presidential and parliamentary elections in 2007.