Mongolia on Wednesday marked 25 years since its first democratic election, a key milestone in the transformation of the once Communist nation squeezed between giant neighbours Russia and China.

President Tsakhiagiin Elbegdorj, who as a student led protests that helped spark the changeover from seven decades of Soviet domination, told a commemoration that his country was now "an active democracy unique to the region".

"Mongolia has undergone remarkable change over the past quarter century", he said.

Since the transition in 1990, part of a broader democratic wave that swept the former Eastern bloc and eventually the Soviet Union that had dominated it, Mongolia has become a market economy.

Its people have voted peacefully in a total of 13 parliamentary and presidential elections.

But the resource-rich country -- replete with gold, copper, coal and other minerals -- has been buffeted by the booms and busts common among countries reliant on global demand.

Mongolia experienced unprecedented annual economic growth of an eye-popping 17.5 percent in 2011, largely as a result of foreign investment and mineral exports.

But rising resource nationalism and political infighting over the proper role of foreign investment in extraction has dented growth, as well as the global resources bust.

The Asian Development Bank is forecasting growth of 3.0 percent this year and 5.0 percent in 2016, according to figures on its website.

"Politicians need to be accountable to the people," said Erdene Bat-Uul, who played a leading role in challenging the existing regime in 1990 as the first chairman of the newly formed Mongolian Democratic Party, and is now mayor of Ulan Bator.

"All their activities should be open to the public," he told AFP. "The challenge is how to make politicians more accountable to the people."

To the north, Russia is led by Vladimir Putin, who is in a standoff with the West over Ukraine, while to the south China remains ruled by the Communist party.

With just three million citizens, Mongolia worries about overreliance on demand from its giant southern neighbour, its top market and also a major investor in resource development.

But Bat-Uul told AFP he saw neither Beijing nor Moscow as threats, adding: "If Mongolia stays democratic, it's good for Russia, China and the region."

Prime Minister Chimediin Saikhanbileg, who took office last year and has been pushing policies friendly to foreign investors, looked to a wealthier future.

"For the next 25 years, Mongolian people hope to step up from the slogan 'We were born in Mongolia' to 'Made in Mongolia'," he said.