ANCHORAGE, Alaska (Reuters) -- Republican Gov. Frank Murkowski lost his bid for a second term on Tuesday, making him the first incumbent Alaska governor in 20 years to be unseated in his party's primary election.

Murkowski conceded the race to former Wasilla Mayor Sarah Palin about two hours after the polls closed and pledged to support her. Palin, running a campaign that portrayed her as a reformer bucking the state's Republican establishment, will now face former Democratic Gov. Tony Knowles in November's general election. With over two-thirds of the precincts reporting, Palin had 51.1 percent of the total. John Binkley, a Fairbanks businessman and former state senator, was in second place with 29.5 percent, and Murkowski trailed with about 19 percent.

Murkowski, who is the first Alaska governor to lose in the primary election since Democrat Bill Sheffield was defeated in 1986, angered Alaskans by appointing his daughter to fill out his U.S. Senate term, buying a state jet for his personal use and other actions that were considered ham-fisted.

Murkowski, who served 22 years in the U.S. Senate before being elected governor, spent much of his political career supporting the oil industry and made his agreement for a $20 billion gas pipeline the cornerstone of his campaign.

In the Democratic primary, Knowles had 74 percent of the vote, easily besting state Rep. Eric Croft for the nomination. Knowles served two four-year terms before Murkowski was elected in 2002. The state constitution allows for a third gubernatorial term but mandates a break after two consecutive terms.

An overriding issue in the race was Murkowski's negotiated contract with the three top Alaska oil producers for a proposed pipeline that would ship the North Slope's vast natural gas reserves to U.S. markets. The proposal set terms for taxes, royalties, state investment and regulation of the massive gas project, estimated to cost over $20 billion.

Critics said it made too many financial and regulatory concessions to BP, Exxon Mobil and ConocoPhillips, and that certain provisions -- such as a promised freeze to oil taxes -- are likely unconstitutional. All of Murkowski's gubernatorial opponents said they wanted a gas pipeline too but blasted his deal as bad for the public. "It'll be a matter of working with the legislature to get the best project now," Palin said. "Not just allowing Exxon, British Petroleum and ConocoPhillips to tell us how our resources will be developed." Knowles also voiced support for the project. "This is a positive vote to get the (gas) pipeline off high center. It's been stuck," he said.

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