UPDATE 4-Kuwait faces parliamentary deadlock after court ruling

* Constitutional court decision is blow to government

* Likely to head off opposition unrest in major oil producer

* Parliamentary boycott blocking economic development plan

* Any new chamber set to be dominated again by gov't critics (Adds details on development plan, edits)

By Mahmoud Harby and Sylvia Westall

KUWAIT, Sept 25 (Reuters) - Kuwait's top court rejected a government bid to alter voting boundaries on Tuesday, leaving it without a clear option to break a parliamentary deadlock that has stymied important economic bills in the major Gulf Arab oil producer.

The ruling was likely to defuse tension with an opposition increasingly assertive after democratic revolutions elsewhere in the Arab world. The opposition had warned it would take to the streets if the court ruled in the government's favour.

But the decision did not solve the problem of how to set up a functioning parliament. In the last assembly, dissolved on a technicality by the Constitutional Court, Islamist and tribal lawmakers clashed with the government over finance bills including a far-reaching economic development plan.

The opposition had said the government's petition to the court to change the electoral boundaries was a manoeuvre to give the edge to government-friendly candidates in a new election.