East Timor independence hero Xanana Gusmao's party is leading with two-thirds of votes counted in a parliamentary election, state media says, heralding a possible return to power for the former rebel after almost a decade in opposition.

Sunday's election, which paves the way for the winning party or a coalition of parties to appoint the head of government, is a battle for the premiership between Gusmao and Mari Alkatiri, another resistance-era figure from the ruling party.

With almost 70 per cent of ballots counted, Gusmao's opposition party, the National Congress for Timorese Reconstruction (CNRT), had about 40 per cent of votes, according to election commission data broadcast by state media Radio-Televisao Timor Leste.

The ruling Revolutionary Front for an Independent Timor-Leste (FRETILIN), which leads a four-party coalition backing the incumbent prime minister Jose Maria Vasconcelos, or Taur Matan Ruak, had about 27 per cent of votes.

Fifteen other parties were contesting the poll, although none had more than 10 per cent of votes as of Monday.

Reuters could not independently verify the results.

The election is East Timor's fifth parliamentary poll since it gained full independence in 2002 following decades-long occupation by Indonesia.

Heavily dependant on its fast-depleting oil reserves for revenue, the half-island nation of 1.3 million people has grappled with diversifying its economy and reducing high rates of poverty.