WASHINGTON — It's beginning to look a lot like Christmas -- with tree lights twinkling, sleigh bells ringing and President Barack Obama locked in his annual Yuletide power struggle with Republicans in Congress.

This year's fight -- over Obama's demands for an extension of a workers' tax cut and unemployment benefits -- has added pep, as both sides clearly view the seasonal slugfest as an early skirmish in the 2012 election.

With lawmakers pining to be home for the holidays and Obama eyeing the sun and surf of his native Hawaii, both sides are playing chicken with the calendar. Obama has even told Republicans not to be a "Grinch."

Obama says the cut in payroll taxes, which he says will help the poorest workers who need it most, should be paid for by higher income taxes on the wealthiest Americans, drawing Republican charges of class warfare.

The gambit reflects his emerging 2012 reelection strategy, laid out in a speech this past week, of painting Republicans as chief sponsors of a financial system rigged for the rich that robs regular Americans of a "fair shot."

"They want to go back to the same policies that stacked the deck against middle-class Americans for way too many years," Obama said in Kansas on Wednesday.

The president is also at loggerheads with Republicans who blocked his nominee to head a new financial services watchdog designed to spare consumers from the excesses of Wall Street and credit card firms.

Obama is keen to spring the trap he has laid, and blame Republicans for inequality, but also needs to project strength following claims by some backers he has been too compliant with Congress in the past.

Republicans meanwhile want to inflict another dent in the president's depressed approval ratings and deprive him of a morale-boosting win as he faces a tough reelection bid in testing economic times.

Until this week, Obama seemed to have the upper hand in the game of brinkmanship, as a clock ticks down in the White House briefing room marking the hours until middle class taxes increase if Congress fails to act.

Republicans argue that increasing taxes on the rich penalizes job creators but had a tough time combating Obama's message that the wealthy should do a little more just to give everyone else a $1,500 tax break.

In a clever twist, House Republicans threw up a roadblock, making a payroll tax extension conditional on Obama agreeing to a controversial US-Canada oil pipeline project, thrusting the president back into a heated row.

The president last month deferred a decision on whether the pipeline, which supporters say will create thousands of jobs, should be built, drawing claims he caved in to environmentalists and liberals in the Democratic coalition.

"The President says the American people can't wait on jobs. Well guess what, we agree wholeheartedly with the president," said House speaker John Boehner.

"The Keystone pipeline project will create tens of thousands of jobs immediately."

With the House expected to vote early next week, Obama has issued a veiled threat to veto any bill to extend the payroll tax cut that includes the pipeline project.

And top Senate Democrat Harry Reid warned: "If the House sends us their bill with Keystone in it, they are just wasting valuable time because it will not pass the Senate."

Other sweeteners included in the House bill to win Republican votes, including an attempt to defund part of Obama's healthcare law, are also likely to be stripped out by the Democratic Senate.

The new wrangling is likely to further run out the clock towards the Christmas holidays, as any changed Senate bill will have to go back to the House for another vote.

Keystone also looms as a tough end-of-year vote for Democratic lawmakers torn between their president and a project touted as a job creator.

"The president is serious. But in politics, I think everybody understands that you get the best deal you can," said Representative Emanuel Cleaver, an ally of Obama, apparently suggesting the president could back down.

Christmas showdowns between Obama and Congress are nothing new and help set the tone for the political fights to come.

In his first festive season in office in 2009, the president fought up until Christmas Eve to win Senate passage of his landmark health care reform law.

Last year, Obama dueled with Republicans, agreeing an extension to Bush-era tax cuts and winning Senate ratification of a new nuclear deal with Russia, a victory which replenished his political stock after a mid-term election rout.