(Adds demonstrations, reactions in secession camp, ruling party)
By Sam Edwards and Julien Toyer
BARCELONA/MADRID, Oct 26 (Reuters) - Catalan president Carles Puigdemont is set to call a snap regional election, political allies said, a move that could help break a one-month deadlock between the Madrid government and separatists seeking a split from Spain.
The uncertainty remained high however as Puigdemont who had announced he would deliver an address at 1.30 p.m. (1130 GMT), first delayed it by one hour and then cancelled it, triggering speculation he could still change his mind.
Several members of his pro-independence coalition said he would dissolve the regional parliament and call the vote. The regional broadcaster said he would deliver a speech in the assembly at 5 p.m., as had initially been planned.
Barcelona-based La Vanguardia said he would call the vote for Dec. 20 and was taking the decision in a bid to persuade the government of Prime Minister Mariano Rajoy not to enforce direct rule in the region, which he might do as soon as Friday.
The Catalan secessionist drive is Spain's worst political crisis since the military dictatorship of Francisco Franco ended in 1975. It has fractured society and hundreds of companies have left the region.
It is also the most serious challenge to the integrity of a Western European country since an independence referendum in Scotland in 2014, when voters in the end chose to stay part of the United Kingdom.
European leaders fear it could spur secessionist ambitions in other parts of the continent.
But cracks appeared late on Wednesday in the independence coalition as some members backed an election while others said there was no alternative to independence.
Within minutes of Thursday's developments, several pro-secession lawmakers and mayors announced they were stepping down.
"I don't share the decision to call an election. I am resigning as a lawmaker and a member of PdeCat (Puigdemont's Catalan Democratic Party)," said Jordi Cuminal on Twitter.
Several hundred people also took to the streets and gathered on Placa Sant Jaume, in front of the Catalan government's headquarters in central Barcelona.
"Puigdemont traitor," a big banner read.
Far-left party CUP, a key support for Puigdemont's minority government, said it would oppose a vote.
"Until now, pro-independence supporters had one problem: the Spanish state. If elections are called, they will have two," it said on twitter.
Demand for Spanish debt and shares jumped when it emerged Puigdemont could call an election.
Spain's 10-year government bond yield - which moves inversely to price - fell 6 basis points to 1.58 percent on the news. The stock index IBEX rose 1.9 percent to a four-week high.
"This news is positive for Spain because it looks like Puigdemont is looking for ways other than declaring independence," said ING strategist Martin van Vliet.
"It sounds like he is calling these elections so that Madrid does not have to invoke article 155," that would allow central government to suspend the wealthy region's autonomy.
It is not yet clear whether Rajoy will impose direct rule as planned or simply seek the Senate's authorisation to do so but stop short of making it effective.
His government said earlier this week that calling a snap election would not be enough, and Puigdemont would also have to withdraw an ambiguous declaration of independence he made on Oct. 10.
An election could either strengthen Puigdemont's mandate if pro-independence parties won, or allow him a graceful exit if they did not.
An opinion poll published by the El Periodico newspaper on Sunday showed a snap election would probably have results similar to the last ballot, in 2015, when a coalition of pro-independence parties formed a minority government. (Additional reporting by the Madrid newsroom; Editing by Angus MacSwan and Robin Pomeroy)