UPDATE 3-Cambodian PM Hun Sen to hand over power to son next month

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PHNOM PENH, July 26 (Reuters) - Cambodia's Prime Minister Hun Sen said on Wednesday he will step down and hand over power to his son next month, ending a near four-decade reign during which he established stability after years of war but stifled democracy in the process.

One of the world's longest ruling leaders, Hun Sen made the announcement days after his Cambodian People's Party (CPP) won 120 of 125 parliamentary seats in a general election from which all serious opponents were banished.

"I met the king, and declared I won't continue the position as prime minister anymore," Hun Sen said in a nationally televised address.

"I must sacrifice and relinquish power."

Hun Sen, 70, said his son, Hun Manet, would get royal approval as prime minister on Aug. 10 and be sworn in on Aug. 22.

"Hun Manet ... will become the prime minister in the coming weeks," he said.

Hun Sen said it was time to make way for a younger generation of leaders.

"It is very necessary to have a new cabinet which comprises mostly young people ... they are responsible for the future," he said.

"Long-term peace and development will be continued under my son."

But Hun Sen will not disappear into retirement. He said he would be staying on as head of the ruling party and a member of the National Assembly. He recently said he would step back in to the prime minister's job if his son did not perform well.

CLOSER TO CHINA

Opposition politicians, most of them in self-exile, and rights groups say Hun Sen has for years suppressed democratic institutions while party colleagues and relatives have benefited from a range of business concessions.

The government has rejected accusations of corruption within its ranks levelled over the years by opposition politicians, rights groups and environmental activists.

In 1993, Hun Sen rejected the result of a landmark election organised by the United Nations aimed at ending a conflict that had endured since Cambodia was dragged into the Vietnam war in the late 1960s.

He entered an uneasy coalition with his royalist rivals only to oust them in a bloody takeover in 1997.

A former mid-level commander of the communist Khmer Rouge, Hun Sen responded to attempts by the United States and other Western powers to press him to support democracy by moving closer to China.

"It is concerning that Cambodia has witnessed a constant shrinkage of democratic space in recent years, undermining fundamental freedoms and the right to participate in public affairs,” U.N. High Commissioner for Human Rights Volker Türk said in a statement on Wednesday.