Thai judges ordered Prime Minister Somchai Wongsawat's ruling People Power Party (PPP) disbanded on Tuesday after it was found guilty of vote fraud, but party members vowed to "move on" and form another government.

"We will all move to a new party, Puea Thai, and seek a vote for a new prime minister on December 8," Jatuporn Prompan, a PPP MP, told Reuters.

Former minister Jakrapob Penkair said the verdict came as no surprise. "Our members are determined to move on and we will form a government again out of the majority that we believe we still have," said Jakrapob, a close associate of ousted Prime Minister Thaksin Shinawatra.

The Constitutional Court also barred the party's top leaders, including Somchai, from politics for five years, raising the risk of clashes between his supporters and thousands of anti-government protesters blockading the capital's two airports.

The court also ordered two other junior parties in the government coalition disbanded.

A grenade was fired from a flyover near the domestic airport hours before the court hearing, killing one anti-government protester and wounding 22 others.

Thousands of foreign tourists have been stranded by the protests and the air cargo industry has ground to a halt, costing the country millions of dollars.

Hundreds of government supporters gathered inside the court compound on Tuesday and riot police were guarding the courtroom where the judges were reading verdicts.

The yellow-shirted People's Alliance for Democracy (PAD) demonstrators at the airports have been seeking to topple Somchai, whom they accuse of being a Thaksin pawn.

Thaksin, Somchai's brother-in-law, was ousted in a 2006 coup and is now in exile.

The Thai baht edged up against the dollar and the stock market, which had been lower earlier, also turned round as optimism rose that political unrest could ease after the ruling.

"It's positive short-term as the government term has ended and the PAD may stop its protest," said Nuchjarin Panarode, an economist at Capital Nomura Securities.

"But in the longer term, there is still uncertainty as we need to wait for a new government and see its policies."    

The electoral fraud case, stemming from December 2007 general elections won by the PPP, was scheduled to be heard at the Constitutional Courthouse in Bangkok on Tuesday but was moved after hundreds of red-shirted government supporters surrounded the building.

Several thousand PAD supporters have occupied the prime minister's offices since August but the PAD has said it would hand the compound back to the authorities on Tuesday.

A Reuters reporter said only a handful of PAD activists remained at Government House early on Tuesday. There were no police present, but cranes had arrived to remove the shells of six buses used to barricade surrounding roads.

The PAD leadership apparently intends to move more supporters to the international airport, which has been blockaded for a week, adding to the pain of a tourist- and export-dependent economy already suffering from the global financial crisis.

Finance Minister Suchart Thada-Thamrongvech told Reuters on Monday the economy might be flat next year, or grow by just 1-2 percent, after earlier growth forecasts of between 4-5 percent.

The chaos has worried Thailand's neighbours, who were due to meet in the country in two weeks for a regional summit. A government spokesman said after a cabinet meeting on Tuesday that Thailand had postponed the summit to March 2009. - Reuters