As soon as I ugpraded to Mavericks and updated to latest version of Parallels 9, for some reason Local system service always shows 50% cpu usage in Windows. I've copied the same VM to ML with the same version of P9 and it works perfectly and keeps all services/tasks under 5%. Since this is the same EXACT machine copied within minutes, I don't think it's Windows.
Ignore this. Turned out to be a group policy issue. Weird that it wasn't an issue on ML, but maybe something weird fixed it. Thanks!