Madagascar's President Marc Ravalomanana handed power to the armed forces on Tuesday, paving the way for an opposition takeover after a months-long power struggle on the Indian Ocean island.

After right reflection, I have decided to dissolve the government and transfer power so that a military government can be put in place, Ravalomanana said in a statement on national radio at the end of his seven-year rule.

Despite concerns from abroad that he should have gone to the ballot box, opposition leader Andry Rajoelina appeared to have sufficient domestic support to consolidate power on the huge, mineral-rich island off the coast of southeast Africa.

Rajoelina, whose street protests since the start of 2009 bulldozed the president into stepping down, immediately assumed authority, marching into Ravalomanana's city-center offices.

The opposition said elections would be held within two years. We can say that we are free. There is a lot of work that awaits us. It is the path Madagascar must take, Rajoelina said.

Aides of the president said he handed over to navy admiral Hyppolite Ramaroson, Madagascar's highest ranking officer.

But the army chief of staff said he favored Rajoelina, 34, a former disc jockey and sacked mayor of Antananarivo.

If we go with the vice-admiral we will throw ourselves into another crisis, Colonel Andre Ndriarijaona told Reuters.

The head of the paramilitary gendarmerie echoed his view. And the military's top brass, including Ramaroson, summoned journalists to a camp for an announcement later on Tuesday that sources said would be a ratification of support for Rajoelina.

The military ignored a warning from the African Union, which opposes any unconstitutional transfer of power on a continent only too familiar with bloody uprisings, not to hand over to the opposition.

Some Western powers, including the European Union, had warned they would cut aid to anyone coming to power by force.

Recent developments in Madagascar are giving increasing cause for concern. The use of violence as a means to short-circuit the constitutional process is unacceptable, said a statement from EU foreign policy chief Javier Solana.

DEATHS AND DAMAGE

Weeks of turmoil and protests in Madagascar, the world's fourth largest island, have killed 135 people, crippled the $390 million-a-year tourism industry and scared foreign investors in the important mining and oil exploration sectors.

Now the country has to convince donors that it is going back to democracy -- organizing an election and putting in place a transition government, said Lydie Boka of the France-based risk consultancy StrategieCo.

Opposition officials said as well as holding a poll, they would re-write the constitution to create a Fourth Republic.

With the opposition assuming power and most of the military against him, Ravalomanana, a 59-year-old self-made dairy tycoon, had no option but to step down, analysts said.

Rajoelina is, however, too young to be president, according to Madagascar's present constitution, which stipulates 40 as a minimum age.

Aides said Ravalomanana had left his residence on the outskirts of the capital and was at an undisclosed location. In Washington, a State Department spokesman denied media reports Ravalomanana had asked for sanctuary at the U.S. embassy in Antananarivo.

The charismatic Rajoelina had called the president a dictator running Madagascar like a private firm with no concern for the poor, tapping into widespread public discontent with high levels of poverty.

Ravalomanana's supporters had said the opposition leader was a hothead bent on seizing power illegally.

Madagascar