ROME (Reuters) - Storm clouds are gathering over Mario Monti's efforts to transform the Italian economy, with his approval ratings dropping, mounting protests against his reforms and a damaging row with the parties that sustain him in parliament.

Monti shot out of the blocks after being appointed prime minister in November and quickly implemented tough austerity measures to fend off the debt crisis. But he now risks running into political quicksands that will slow down and weaken the much harder task of reviving a notoriously stagnant economy.

A labour reform that is at the center of Monti's programme has hit heavy opposition, forcing him to abandon immediate implementation and accept a parliamentary debate that will delay the law for months and could lead to it being diluted.

The reform has also caused rifts in the center-left Democratic Party, his second-biggest parliamentary backer, destabilizing the alliance on which he depends to govern.

Italy's borrowing costs, which fell sharply after Monti took power, have also begun to creep upwards recently, reflecting in part the increased political uncertainty.

The technocrat premier was widely criticized by both politicians and commentators in Italy on Thursday for an outburst against the parties from Japan, where he was on an Asian tour intended to drum up foreign investment.

Monti told reporters: "The government enjoys high support in opinion polls, the parties do not." This followed remarks in South Korea where he threatened to step down if the parties and trade unions didn't like the job his administration was doing.

Both remarks betray Monti's irritation at political sniping and opposition to his measures, particularly the key labour reform. They also mark a departure from the statesmanlike demeanor he adopted earlier in the year when he never lost an opportunity to laud the parties' sense of responsibility.

Judging from reaction on Thursday, the previous approach was more prudent, and the former European Commissioner may have overplayed his trump card - the extreme reluctance of the parties to lead a government that must take painful and unpopular measures to ward off financial disaster.

"This muscular exhibition risks compromising the good things achieved so far by this government, backed by responsible political parties," commentator Pierluigi Battista said in a front-page editorial in the respected Corriere della Sera daily.

Democratic Party (PD) leader Pier Luigi Bersani, under heavy pressure from the party's left wing over the labour reform, quickly shot back at Monti, underlining the interdependence between technocrats and politicians.

"Either politicians and technocrats convince the country together or ... we will all get a kicking," Bersani said.

DEBT CRISIS

Monti was appointed as Italy tottered on the brink of a Greek-style debt crisis and politicians suffered widespread contempt for failing to head it off.

But to govern, he is dependent on a grand political coalition stretching from the center-left to the center-right.

Monti's irritability may reflect a drop in his approval ratings because of the labour reform, intended to free up a sclerotic dual system that gives cast-iron protection to older workers on permanent contracts while condemning many young people to endless temporary contracts without benefits.

Most Italians do not seem to believe Monti's assertion that a reform making it easier to fire people will also create a fairer jobs market. A poll on Sunday found 67 percent of people opposed the measure.

The same poll showed Monti's support falling to 44 percent last weekend from 62 percent in early March, although another poll on Wednesday registered a more modest drop to 55 percent this month from 59 percent in February.

Nevertheless, his approval is way higher than that of the major parties, whose ratings are still below 30 percent.

Monti's problems also reflect two other factors, one an ironic consequence of his own success, and the other a signal of the return to center stage of politicians who were cowed by the economic emergency but are now vying to retrieve some of their support in local elections on May 6-7, the first substantial electoral test since the technocrat government took power.

Monti's major prestige abroad, his sobriety and obvious expertise have contributed to a slide in Italy's borrowing costs from an untenable level above 7 percent in November to more manageable levels of around 5 percent.

This reduced the pressure for politicians to go along with his reforms and also encouraged trade union opposition.

GENERAL STRIKE

The biggest union, the leftwing CGIL, has threatened a general strike against the labour reforms and all the three main union confederations have announced a joint protest on April 13 against a pension reform that was passed in December to muted opposition and is seen by many as Monti's biggest achievement.

Monti's problem is that the easing of debt pressure and his own stumbles over the reform have left space for a revival of political squabbling between the grand coalition's right and left, which will make future reforms more difficult and revive anxiety in financial markets already on edge about Spain's economic difficulties.

Parliamentary debate on the labour reform is likely to see the PD trying to weaken the changes and the center-right People of Freedom (PDL) party of former Premier Silvio Berlusconi pulling in the opposite direction.

The PDL, backing the position of employers, opposes any changes and says the bill should have been implemented immediately. But if there are changes, it says they must be balanced between right and left, risking prolonged debate.

None of this suggests Monti's days are numbered, only that they may be a great deal more difficult from now on.

With a general election in a year, the parties struggling to overcome their low public esteem and a crisis of identity caused by Monti's wind of change, none want to risk toppling him and provoking a new market storm.

In addition, there is almost no chance of an election now being held before next spring - the season when Italian polls traditionally take place. All sides swiftly denied a recent rumor that there could be a vote in the autumn.

So Monti will no doubt soldier on out of a sense of duty, with the constant danger that his difficulty in passing deep reform will again upset the markets and reverse the progress he has made in restoring respect for Italy.

(Editing by Alessandra Rizzo)