LONDON - The Liberal Democrats elected 40-year-old Nick Clegg as their third leader in two years on Tuesday, handing him the task of improving their battered electoral fortunes and restoring party harmony.

Clegg pledged a new politics and a new Britain in his acceptance speech after polling just 511 more votes than his only rival Chris Huhne, 53, in a ballot among over 40,000 party members.

"My election as leader today marks a new beginning," the party's former law and order spokesman told supporters.

"Under my leadership we will be ambitious. Together we can break the stifling two-party system and change Britain for good."

He pledged to open up the party and politics in general to the outside world and provide an alternative to the "discredited politics of big government".

He said he will hold regular public town hall meetings and spend at least one day a week listening and campaigning outside Westminster.

"No more 'government knows best,'" he added.

The LibDems could hold the balance of power if -- as many analysts expect -- neither Labour nor the Conservatives win a clear majority at the next general election, due by 2010.

"Today is about ... renewed ambition to reach out to the millions of people who I know share our instincts and values but don't yet vote for us," Clegg added.

Eyeing the LibDems as a crucial power-broker, the Conservatives recently invited them to form an alliance against Prime Minister Gordon Brown but were rebuffed.

The Conservative move followed a collapse in support for Labour following a run of damaging headlines for the government and worries over the economy. In a YouGov poll on Sunday, the Conservatives had 45 percent, Labour 32 and the LibDems 14.

Clegg, a pro-European and former member of the European Parliament, faces the task of rebuilding support for his party after it floundered in the polls under previous leader Menzies Campbell, 66, and hit its lowest level in six years.

Clegg's boyish looks and good communication skills make him a good match for Conservative leader David Cameron. He stands slightly right-of-centre while Huhne campaigned on a left-of-centre manifesto.

Campbell resigned in October faced with an avalanche of criticism of his age and leadership style.

Clegg is expected to try to re-energise the LibDems with a makeover of its leading figures that could include a role for former leader Charles Kennedy.

Kennedy was the party's most successful leader in recent times, reaching the height of popularity by opposing the 2003 U.S.-led Iraq war.

He was forced to resign in January 2006, admitting he had an alcohol problem.