TAIPEI, May 17 (Reuters) - Taiwan's main opposition Kuomintang (KMT) party picked New Taipei City mayor Hou Yu-ih on Wednesday to be its presidential candidate for an election next year, with China tensions set to top the election agenda.

The run-up to the vote in mid-January is taking place at a time of increased tensions between Taipei and Beijing, which has staged regular military exercises near Taiwan to assert its sovereignty claims over the democratically governed island despite Taiwan's strong objections.

The KMT favours close ties with China while the ruling Democratic Progressive Party (DPP) champions Taiwan's separate identity.

"Internationally, our country faces fierce troops and the danger of war," Hou told reporters at the party's headquarters in Taipei after his candidacy was announced.

"Within the country, there are conflicts over divisions and countless things to be fixed, making it hard for young people to see their future," he said, vowing to lead the KMT to victory.

Outside KMT's headquarters, dozens of people stood behind barricades, some waving Taiwan's flag. A big banner saying "oppose war, want peace" was on display.

KMT chairman Eric Chu said the decision was made based on unspecified "scientific data" as well as a consensus by senior party members including county chiefs and lawmakers.

"For the future of the Republic of China and cross-strait peace, the Kuomintang must return to office," Chu said, using Taiwan's official name. The KMT last held office between 2008-2016 amid warming ties with China.

Hou will run against the DPP's William Lai, Taiwan's vice president, who was leading the KMT pick by about five to 10 percentage points, according to three Taiwan polls released this week.

Formerly the head of the National Police Agency, 65-year-old Hou was thrust into the limelight after a landslide re-election win in New Taipei city late last year in a local election in which the KMT trounced the DPP.

Foxconn (2317.TW) founder Terry Gou, who stepped down as the company's chief in 2019, was also in the fray for the KMT's nomination but congratulated Hou on Wednesday for winning and called him the "best candidate" for the party.

"I will keep my promise to do my best to support Mayor Hou's election campaign in order to win the 2024 election and to remove the incompetent government," Gou said in a Facebook post.

The KMT denies being pro-Beijing, although it supports maintaining good relations with China as well as the proposal that both are part of a single China though each can have its own interpretation of the term.

Despite its differences with China, the DPP has repeatedly offered talks with Beijing that have been rebuffed.

While the KMT has framed the 2024 vote as a choice between war and peace, DPP's Lai has urged voters to choose "democracy" over authoritarianism.