TAIPEI - TAIWAN'S ruling party, stung by a dramatic loss in weekend parliamentary elections, will go back to the drawing board and rethink its campaign ahead of the presidential poll in March, political sources said on Monday.

The opposition Nationalist Party (KMT), which ruled Taiwan for decades and once governed all of China, thrashed the Democratic Progressive Party (DPP) on Saturday, strengthening its bid to recapture the presidency and heralding better relations with China.

The KMT won 81 seats in the chamber to the DPP's 27.

'Mr Hsieh said that because of this loss, we must more modestly listen to the people's voices, reflect them well and have discussions,' the DPP said in a statement on Monday, referring to new DPP chairman and presidential candidate Frank Hsieh.

Taiwan's current political separation from the Chinese mainland dates back to the end of a civil war in 1949 when Mao Zedong's Communist armies swept to victory and the defeated Kuomintang set up their rival government on the island.

Beijing insists Taiwan is a renegade province that must be brought back under its rule, by force if necessary.

A DPP victory in March would signal four more years of a hard line against China. The KMT favours eventual reunification with a democratic mainland.

Mr Hsieh took over as DPP chairman on Monday from current President Chen Shui-bian, who took blame for the legislative loss and called it the worst crisis in the party's 21-year history.

'It's the ruling party, so people would like to see it make change by performance,' said Mr Wu Ray-kuo, a Taipei university professor and political risk consultant.

'Mr Hsieh needs to do it quickly. He needs to bring enthusiasm and a sense of freshness.'

The DPP lost Saturday's elections in part because voters felt it had failed to answer their concerns about wages, prices and employment. The party also failed to mobilise voters as it had done before other elections.

Expect sustained anti-China campaign comments from the DPP but a more moderate line from Hsieh himself, analysts say.

The party is under pressure to engage with China where the fast-growing economy has attracted more than 750,000 Taiwan investors. Taiwan stock and currency markets jumped on Monday, partly on news of the KMT victory.

Mr Hsieh's campaign won't be easy, political experts say, because factions remain entrenched in the DPP, with some accusing the party of ignoring its original social policy agenda.

KMT-backed presidential candidate Ma Ying-jeou leads Mr Hsieh 60 to 18 per cent, according to a newspaper poll published on Monday.

The DPP must also try to distance itself from a series of graft scandals that have shaken Mr Chen's administration, experts say. Mr Hsieh was investigated for graft last year but not charged.

Further aiding the DPP, the legislative landslide could sway voters who prefer a balance of power, especially those who distrust the KMT after decades of sometimes brutal rule before Taiwan adopted democracy in the 1980s, political observers say. -- REUTERS