Describing himself as Allah's "insignificant slave" the outgoing Malaysian leader, in an astonishingly undiplomatic speech, described Westerners as a greedy, warmongering mob which promoted free sex and sodomy, was indifferent to incest, and had an unbridled desire to conquer the world.

Malaysian Prime Minister Mahathir Mohamad vilified the European race, warned his party that it could lose power and wept as he described himself as Allah's "insignificant slave" at the last party assembly before his retirement.

Many in the audience of more than 2,000 delegates were also in tears as they listened to the swansong of the man who has led the rapidly-developing Southeast Asian nation for 22 years and has pledged to step down in October.

In what must rank as one of the most astonishingly undiplomatic speeches by the leader of a nation with strong economic, political and military links to the West, Mahathir accused the European race of warmongering, indiscriminate attacks on Muslims, greed and sexual deviancy.

The 77-year-old medical doctor, who has attained almost mythical status in the former British colony, predicted that he would be condemned as a racist, but said he needed to warn his people that the Europeans wanted "to control the world again."

Malaysian Prime Minister Mahathir Mohamad

Spelling it out so there would be no mistaking his racial profiling, he said Europeans included "those who migrated and set up new nations in America, Australia and New Zealand."

At the same time he insisted: "I am not anti-European. I have many friends and acquaintances who are Europeans.

"They are very clever, brave and have an insatiable curiosity." But "unfortunately they are also very greedy and like to take forcibly the territories and rights of other people."

In an obvious reference to the recent war on Iraq he said "they have demonstrated that they are ready to invent false allegations in order to go to war to kill children, old people, sick people" to achieve their objectives.

Europeans had "begun to invade and rule certain countries, ostensibly for their security but in fact to exploit the wealth in these countries," he said.

Mahathir, who heads a moderate Muslim government, said the September 11, 2001, terrorist attacks on the United States were "an excuse for the Anglo Saxon Europeans to return to their old violent ways.

"Their strategy to fight terrorism is through attacking Muslim countries and Muslims, whether they are guilty or not."

Just over a year ago, Mahathir was invited to the White House to be thanked personally by President George W. Bush for his support in the war on terrorism, but his strong opposition to the war in Iraq has seen relations sour.

Mahathir said Europeans also wanted to impose their cultural values on the world, including "unlimited freedom for the individual" and "the practice of free sex including sodomy as a right."

"Marriage between male and male, between female and female are officially recognised by them. What we call incest is not regarded as serious by them."

He said he was "embarrassed" to criticise Europeans, knowing that friendly countries would feel hurt, "but it is very important that we know this race ... because they will play a big role in our life and our race, our religion and our country."

He said the Europeans' new slogan was "regime change," and warned delegates to the assembly of his United Malays National Organisation (UMNO): "Do not think we will not be targeted."

Calling for unity, he said power struggles after he steps down in favour of Deputy Prime Minister Abdullah Ahmad Badawi could see the ousting of the party which has run the country since independence in 1957.

He pointed particularly to the threat posed by the Islamic Party (PAS), a hardline religious group which wants to turn Malaysia into a theocratic state complete with amputations for theft and stoning to death for adultery.

In an emotional closing, Mahathir sought forgiveness for mistakes he made during his tenure and wept as he thanked Allah for giving "his insignificant slave" the opportunity to lead the party.

After the speech and as the assembly wound down, Mahathir told reporters : "I am surprised with myself. I was afraid to make that speech in case I misbehaved again,"

However, he did remind the crowd that Europeans were a race of colonialist robbers who had snatched New York from the Indians for 10 bottles of brandy and had hoodwinked a Malay prince into surrendering power for a pension, a Rolls Royce and a yellow umbrella.

"They also conquered Australia. The Tasmanians were massacred. When asked about their history, they would refuse to tell us."

He praised Malaysia's achievements. "Our race has progressed to the stage where we can thumb our noses at the Mat Sallehs [whites]," he declared, wriggling five fingers off the end of his nose.

There was a gentler swipe at neighbouring Singapore: "Malaysia is not near Singapore; Singapore is near us."

Dr Mahathir, 77, who has rebuilt UMNO's fortunes and his own popularity after the bitter fallout over the sacking and imprisonment of the popular former deputy Anwar Ibrahim, said he had taken his late mother's advice to quit while he was ahead.

Asked at a news conference if a reconciliation with Anwar, who is serving a total 15 years in jail for sodomy and corruption, was possible, he said this was up to the new leadership to decide.

"He's in jail. If the party wants to accept him after I leave, I have no right to say no. But when you are in the party, you must fight for the party,"

Anwar, 56, was sacked by the premier in 1998 and later charged in what he says was a move to prevent a political challenge to the premier. The government denies the allegation.

His trials were criticised internationally, including by the Canadian government.

At a wrap up news conference, Mahathir insisted that he would make a clean break from politics after he chaired a summit meeting of the Organisation of Islamic Conference in Kuala Lumpur in October.

He said he would continue to attend party conferences as an ordinary delegate and was willing to offer advice to his anointed successor, the Deputy Prime Minister, Abdullah Badawi.

Badawi was once the leader of a splinter group that opposed Mahathir's leadership.

His deputy is expected to be Najib Razak, the son of a former prime minister.