Will Georgia see a peaceful transfer of power? (+video)

Georgia's President Mikheil Saakashvili on Tuesday conceded defeat in parliamentary elections to a coalition led by a tycoon promising to ease tensions with Moscow, four years after the staunch U.S. ally lost a war with Russia.

Russian Prime Minister Dmitry Medvedev, who has long been openly hostile to Saakashvili, welcomed the opposition victory as opening the way for "more constructive and responsible forces" to enter the Georgian parliament.

Saakashvili's acceptance that his ruling party will go into opposition to Bidzina Ivanishvili's Georgian Dream increased the chances of the country's first peaceful transfer of power between rival parties since the Soviet Union collapsed in 1991.

Although it strengthens Georgia's democratic credentials, it could lead to an uneasy cohabitation between Ivanishvili, who is likely to become prime minister, and Saakashvili, who does not step down as president until next year.

Instability in the country would worry the West because it is a conduit for Caspian Sea energy supplies to Europe and has a strategic location on the Black Sea between former Soviet master Russia and Iran, Turkey and central Asia.

Tonino Picula, who led a team of international observers monitoring the vote, endorsed the conduct of the elections.

"Despite a very polarising campaign that included harsh rhetoric and shortcomings, the Georgian people have freely expressed their will at the ballot box," he said in a statement.

Medvedev, who was president and commander-in-chief when Georgia fought its disastrous war with Russia in 2008, expressed hopes that the result would improve the relationship between the countries.

"We can only welcome this as it probably means that more constructive and responsible forces will appear in parliament," Russian news agencies quoted him as saying.

Russia has had no diplomatic relations with Georgia since the five-day war, and both Medvedev and President Vladimir Putin have refused to have any personal contacts with Saakashvili, whom they depict as a dangerously aggressive hothead.

The agencies said Medvedev was speaking in his capacity as leader of the United Russia party, and Putin has yet to comment.

The U.S. State Department congratulated Saakashvili for "graciously conceding" and said it sent a good signal.

Georgian Dream supporters celebrated their victory in the capital on Monday in scenes reminiscent of the euphoria of the 2003 Rose Revolution that propelled Saakashvili to power.

Motorists were again driving through Tbilisi on Tuesday evening with flags flying and horns sounding.

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