Labor party leader Diederik Samsom phoned Prime Minister Mark Rutte in the early hours of Thursday morning to concede defeat. With 96 percent of votes counted, Rutte's Liberal party looked set to win 41 of 150 available seats in the lower house - just ahead of Labor on 39 seats.

Both of the two largest parties are therefore well short of a majority in the house, meaning Rutte will have to secure a coalition in order to govern.

"We won our greatest victory in history and for the second time became the largest party in the Netherlands," Rutte told his supporters in the early hours of the morning. "We fought this election house by house, street by street, city by city, and I'm proud. Tomorrow I will take the first steps leading to the formation of a cabinet."

The rival Liberal and Labor parties had said in the run-up to the vote that they were unlikely to ally in a coalition government, but the results of Wednesday's vote suggest they might have to work together. The two largest parties share 80 seats together, with the remaining 70 spread across a disparate collection of political groups.

The left-wing Socialists came in third place with 15 seats, the same result they secured in 2010.

Heavy losses for far-right

The Socialists overtook the far-right Freedom Party (PVV) of Geert Wilders, which looked set to drop from 25 seats in parliament to just 13. Wilders, famed outside the Netherlands for his rhetoric on issues like Islam and immigration, had campaigned on a platform of a Dutch withdrawal from the European Union.

Rutte had previously been allied with Wilders' party, but the coalition collapsed over proposed spending cuts in April, eventually triggering the early elections.

The centrist Christian Democrats - another junior partner in the former coalition - suffered heavy losses, with near-complete results putting the party tied with Wilders' PVV in fourth place. The Christian Democrats were a traditional powerhouse of post-war Dutch politics.

The leading Liberal and Labor parties both support Dutch EU membership, though they differ on economic policy amid the so-called "debt crisis." Rutte's party is more closely aligned to austerity measures and attempts to limit spending, while Samson and Labor advocate state spending to stimulate the economy.

msh/jm (dapd, dpa, Reuters)