The challenge comes as polls show a tight race between Republican nominee Donald Trump and Democratic nominee Hillary Clinton. In recent days on the campaign trail, Trump has warned of "rigged elections" in "other communities" including cities like Philadelphia.
The current state law, established in 1937, allows poll watchers to monitor locations only within the county in which they are registered to vote. The lawsuit claims that because some electoral districts are not restricted to a single county, the law violates voters' free speech.
"The Commonwealth has no compelling interest in limiting political speech in this fashion," the lawsuit reads. "The Commonwealth's arbitrary exclusion of voters/poll watchers from serving as such in their own legislative district has real, demonstrable impacts."
Philadelphia Democratic Party chairman Bob Brady called the lawsuit a "ridiculous" attempt at voter suppression.
"They should mind their business and stay in their own county," Brady said. "There's no evidence whatsoever of voter tampering."
In the home stretch of the 2016 race, Trump has frequently mentioned widespread voter fraud and called for monitors, with Philadelphia often cited as an example of a place that could have problems on Election Day. The city, a voter-rich Democratic stronghold that has been key to the party's statewide victories in recent cycles, was also frequently mentioned in the lawsuit, which was filed Friday.
Republicans are also attempting to pass legislation making a similar claim in the Legislature. A bill in the GOP-controlled state House of Representatives would change the law to allow the appointment of poll watchers to observe voting anywhere in Pennsylvania instead of within the county where they live, as long as they are a registered voter in Pennsylvania.
The bill emerged from committee unanimously in June, but it is now in the House Appropriations Committee and, with just two more scheduled voting session days after Monday before the election, it is highly unlikely to get to Democratic Gov. Tom Wolf, whose office said Monday that he will veto it.
"The governor opposes the bill because he believes it will lead to voter intimidation," Wolf's press secretary Jeff Sheridan said in a statement. "Through existing law, there are already stringent controls in place to ensure the integrity of elections in Pennsylvania."
Sheridan called the lawsuit "shameful" and an attempt to "delegitimize the election in Pennsylvania."
"The Republican Party is only trying to cause chaos and disruption," Sheridan said.
In a statement Friday, the GOP said the lawsuit is seeking to ensure "the fairest election possible," and maintains neither partisanship nor election fraud is at issue.
It is unclear whether a district court judge will hear the case before Nov. 8.
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