Custom theme function for language switcher block
SOLVED! 

adding hook_theme_registry_alter(&amp;$theme_registry) was the answer.

/**
 * Implements hook_theme_registry_alter
 * 
 */
function MYMODULE_theme_registry_alter(&amp;$theme_registry) {

  $mod_path = drupal_get_path('module', 'MYMODULE');

  if (isset($theme_registry['links'])){ 
    $theme_registry['links__locale_block']['theme path'] = $mod_path;
    $theme_registry['links__locale_block']['function'] = 'MYMODULE_links';
  }
}