* Australian Prime Minister Malcolm Turnbull retains power
* Ruling coalition seen winning two of the 5 seats in doubt Turnbull seen facing difficulties in passing laws (Recasts with Turnbull declaring victory, details on law making)
By Colin Packham
SYDNEY, July 10 (Reuters) - Australian Prime Minister Malcolm Turnbull declared victory on Sunday in a marathon national election, with his coalition government retaining power and the opposition Labor Party conceding defeat.
Vote counting continues into an eighth day, with Turnbull's coalition expected to win two of the five seats still in doubt, enabling it to form a majority government, after having already won 74 of the 150 lower house seats up for grabs in the poll.
"We have won the election," Turnbull told a news conference in Sydney. "We have gone through this election with fiercely fought arguments, issues of policy, issues of principle and we have done so peacefully and it's something we should celebrate."
Although he is expected to form a majority government, Turnbull's gamble in calling the election backfired badly, with a swing to the centre-left Labor opposition and a rise in the popularity of minor parties and independents.
Turnbull's narrow margin of victory over Labor leaves him likely to be forced to rely on independents, who won five seats, to ensure the passage of legislation. That raises questions about how effective his government will be in the long term.
Labor, on course to win 69 seats, conceded defeat.
"It is clear that Mr Turnbull and his coalition will form a government," its leader, Bill Shorten, told a news conference.
Labor vowed not to unduly disrupt the new parliament, although it and several independents oppose much of the coalition's jobs and growth agenda, from how to return to budget surplus to a proposal for a A$50-billion ($38 billion) corporate tax break.
"We need to ensure that all the vital government services are provided, and at the same time, we have to ensure we bring our budget back into balance," said Turnbull.
The difficult legislative pathway after the election could force changes to some proposed legislation, several government figures said.
"None of us should have a tin ear to the public's view about a number of issues, including superannuation," Immigration Minister Peter Dutton told the Daily Telegraph newspaper, referring to proposals on tax breaks for pensions.
Standard and Poor's cut Australia's credit rating outlook to negative from stable last week, threatening a downgrade of its coveted triple A status, over a potential budget impasse. really want to see them start achieving some of their forecasts," S&P official Anthony Walker told a briefing, adding that the cost of refinancing Australia's debt is up to three times more than its foreign currency earnings. ($1=1.3214 Australian dollars)