Custom Login block tpl file and use theme functions

Step1: you can use theme() and preprocess_FORM_ID function in template.php file

function themename_theme(&$existing, $type, $theme, $path) {
   $hooks['user_login_block'] = array(
     'template' => 'templates/user-login-block',
     'render element' => 'form',
   );
   return $hooks;
}

function themename_preprocess_user_login_block(&$vars) {
  // For debug only
  //print '<pre>';
  //print_r($vars['form']);
  //print '</pre>';
  //exit;
  $vars['name'] = render($vars['form']['name']);
  $vars['pass'] = render($vars['form']['pass']);
  $vars['submit'] = render($vars['form']['actions']['submit']);
  $vars['rendered'] = drupal_render_children($vars['form']);
}

Step2:create "user-login-block.tpl.php" tpl file in theme/template directories.