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CAIRO Iran's support to Shi'ite groups in Iraq is obstructing efforts to bridge the sectarian divide ahead of a parliamentary election next year, Iraqi Vice President Iyad Allawi said on Friday.

Iraqi leaders hope to restore control over all Iraqi territory, defeating Islamic State, before an election due by the middle of next year.

"Iran has been interfering even in the decision (making process) of the Iraqi people," he told Reuters. "We don't want an election based on sectarianism, we want an inclusive political process ... we hope that the Iraqis would choose themselves without any involvement by any foreign power."

Allawi, a secular Shi'ite politician who has supporters among some Sunnis, was in Cairo to meet Egyptian leaders including President Abdel Fattah al-Sisi for discussions about oil and the conflicts in Syria, Yemen and Libya.

Iraq lies on the faultline between Shi'ite Iran and the mostly Sunni Arab world. Deep-running animosity and distrust between the two sides is fueled by sectarian divides.

Tensions grew further after Iran, by leveraging its ties with Iraq's Shi'ite majority, has emerged as the main powerbroker in Iraq after the United States withdrew its troops in 2011, eight years after it toppled Saddam Hussein, a Sunni.

Tehran denies interfering in Iraqi politics, saying the military assistance it provides to Shi'ite paramilitary groups is meant to help defeat Islamic State, the Sunni insurgents who declared a "caliphate" over parts of Iraq and Syria in 2014.

U.S.-backed Iraqi forces have dislodged Islamic State from Iraqi cities the militants captured, and are about to fully capture Mosul, which used to be their de facto capital in the country. The group however remains in control of swathes of territory by the Syrian border and inside Syria.

Both of Iraq's current and previous prime ministers, Haider al-Abadi and Nuri al-Maliki, belong to the Dawa party, a Shi'ite group with close ties to Iran.

But Abadi has managed relations with the Sunnis better than Maliki, and also improved Baghdad's ties with Saudi Arabia, Iran's regional foe.

"This is the right time to have a fair election that nobody interferes in, neither Iran nor anybody else, nor Turkey, nor Syria nor the U.S.," said Allawi.

Allawi has previously accused Tehran of blocking his bid to become prime minister in the 2010 elections, even though his group won the largest number of seats, albeit with a narrow margin.

(This version of the story was refiled to fix typos throughout after formatting glitch, makes clear was speaking to Reuters)

(Reporting by Amina Ismail; Writing by Maher Chmaytelli; Editing by Alison Williams)

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Iran should stop interfering in Iraq, Iraqi VP Allawi says - Reuters