* Demonstrations break out again in central Beirut

* Port blast killed 158, left swathes of Beirut in ruins

* Intensifies discontent over endemic graft, mismanagement (Adds president accepts resignation, next steps, Diab quotes)

By Michael Georgy and Ellen Francis

The Aug. 4 detonation at a port warehouse of more than 2,000 tonnes of ammonium nitrate killed at least 163 people, injured more than 6,000 and destroyed swathes of the Mediterranean capital, compounding months of political and economic meltdown.

“Today we follow the will of the people in their demand to hold accountable those responsible for the disaster that has been in hiding for seven years, and their desire for real change,” Prime Minister Hassan Diab said in a speech announcing the resignation.

President Michel Aoun accepted the resignation and asked Diab’s government – formed in January with the backing of Iran’s powerful Hezbollah group and its allies – to stay as a caretaker until a new cabinet is formed, a televised announcement said.

Ahead of Diab’s announcement, demonstrations broke out for a third day in central Beirut, with some protesters hurling rocks at security forces guarding an entrance leading to the parliament building, who responded with tear gas.

For many ordinary Lebanese, the explosion was the last straw in a protracted crisis over the collapse of the economy, corruption, waste and dysfunctional governance, and they have taken to the streets demanding root-and-branch change.

“The entire regime needs to change. It will make no difference if there is a new government,” Joe Haddad, a Beirut engineer, told Reuters. “We need quick elections.”

The system of government requires Aoun to consult with parliamentary blocs on who should be the next prime minister, and he is obliged to designate the candidate with the greatest level of support among parliamentarians.

Diab’s government was under severe pressure to step down. Some ministers had already resigned over the weekend and Monday while others, including the finance minister, were set to follow suit, ministerial and political sources said.

Diab said on Saturday he would request early parliamentary elections.

ACCOUNTABILITY

Aoun has said explosive material was stored unsafely for years at the port. In later comments, he said the investigation would consider whether the cause was external interference as well as negligence or an accident.

The cabinet decided to refer the investigation of the blast to the judicial council, the highest legal authority whose rulings cannot be appealed, a ministerial source and state news agency NNA said. The council usually handles top security cases.

Lebanese, meanwhile, are struggling to come to terms with the scale of losses after the blast wrecked entire areas.

“The economy was already a disaster and now I have no way of making money again,” said Eli Abi Hanna, whose house and car repair shop were destroyed. “It was easier to make money during the civil war. The politicians and the economic disaster have ruined everything.”

The Lebanese army said on Monday that another five bodies were pulled from the rubble, raising the death toll to 163. Search and rescue operations continued.

Anti-government protests in the past two days have been the biggest since October, when angry demonstrations spread over an economic crisis rooted in pervasive graft, mismanagement and high-level unaccountability.

An international donor conference on Sunday raised pledges worth nearly 253 million euros ($298 million) for immediate humanitarian relief, but foreign countries are demanding transparency over how the aid is used.

Some Lebanese doubt change is possible in a country where sectarian politicians have dominated since the 1975-90 conflict.

“It won’t work, it’s just the same people. It’s a mafia,” said Antoinette Baaklini, an employee of an electricity company that was demolished in the blast. (Additional reporting by Laila Bassam and Samia Nakhoul in Beirut, Michelle Nichols in New York; Writing by Ghaida Ghantous Editing by Mark Heinrich, Angus MacSwan, William Maclean)