Kuala Lumpur (AFP) -

Malaysian Prime Minister Najib Razak put his party on a war footing Thursday as polls loom, vowing to "fight till the end" despite a massive financial scandal that has rocked his government.

The leader told the annual assembly of his United Malays National Organisation (UMNO) -- which has ruled Muslim-majority Malaysia for six decades at the head of a coalition -- that the country was facing a "crucial election".

"In this battle we fight till the end, in this election we will emerge victorious", he told thousands of cheering delegates wearing the red colours of his party in Kuala Lumpur.

He also took a swipe at veteran former premier Mahathir Mohamad, who has come out of retirement in a bid to try to oust his government, comparing him to toppled Zimbabwe leader Robert Mugabe.

Elections must be called by August at the latest. Najib did not hint at a date in his speech but speculation is swirling that they will be take place early next year.

Najib's chances of winning a third term have been dented by explosive graft allegations. Billions were looted from the 1MDB sovereign wealth fund that he founded in complex overseas deals which are being investigated in several countries. 

Both Najib, who made no mention of the scandal during Thursday's speech, and the fund deny any wrongdoing.

The US Justice Department has led the charge in tackling the alleged pillaging, launching lawsuits through which it is seeking to recover $1.7 billion in assets thought to have been purchased with looted money, from artwork to high-end real estate.

This week US Attorney General Jeff Sessions told a conference in Washington that the 1MDB scandal was "kleptocracy at its worst".

- Election race upended -

The election race has also been upended by the emergence of Mahathir, who led Malaysia for 22 years, as a key figure in the main opposition alliance. 

The 92-year-old has teamed up with his former nemesis, Anwar Ibrahim, a jailed opposition leader and one of the country's most charismatic politicians.

In his speech at the UMNO gathering, the most closely watched event in Malaysia's political calendar, Najib, 64, accused Mahathir of having "crossed the line" by uniting with former political foes.

He said it was strange there were still people willing to be led by Mahathir, adding that "former Zimbabwe president Mugabe, who is the same age as him, has now been rejected by his own people".

He also warned that if the opposition won the election then Muslim Malays, about 60 percent of the country's 32 million people, "will become homeless and despised in their own country".

UMNO has long championed the Malay cause in a country that is home to substantial ethnic Chinese and Indian minorities, and has enshrined policies that favour them.

The ruling Barisan Nasional (BN) coalition has steadily lost support in recent elections however, with voters increasingly unhappy at recurring graft scandals and rights abuses. They lost the popular vote for the first time in the 2013 election.

But observers believe that the coalition will edge another victory in the forthcoming elections, as the opposition remains weak with leading light Anwar still in jail following a 2015 sodomy conviction his supporters say was politically-motivated.

Najib has overcome the worst of the 1MDB crisis, which peaked in 2015, purging critics from government and cracking down on dissent.

"BN, and especially UMNO, is set to win big," said Oh Ei Sun, from Malaysian think-tank the Pacific Research Center. 

"The opposition is definitely not shaping up for a real fight."