President Fox's conservative party has lost key mid-term elections to Mexico's Institutional Revolutionary Party (PRI) which made a strong comeback.
Natividad Gonzalez of the winning PRI party celebrates a return to popularity
Half of all votes cast have now been counted, officials said on Monday.
The PRI took 34% of the vote while President Fox's conservative National Action Party (PAN) earned 30.5%.
The PRI consequently now holds between 222 and 227 of the 500 seats of the Chamber of Deputies, the parliament's lower house.
President Fox's National Action party (PAN) stands to lose at least 40 Chamber seats of the 202 it currently holds.
The PRI won four of six state governorships up for grabs on Sunday - including the rich industrial state of Nuevo Leon - which had been a PAN stronghold.
The centre-left PRD party made major gains in Mexico City, the world's most populated city, sweeping local officials into
office and obtaining a city council majority.
It also nearly doubled its number of seats in the Chamber of Deputies: a victory for Mexico City's PRD Mayor,
Andres Lopez Obrador.
Mr Obrador is one of the most popular politicians in Mexico and is being touted as the country's next president in 2006.
After results were announced both President Fox and PRI leaders called for coalition building to surmount the problems of
Mexico, a country where half of the 100 million inhabitants live in poverty.
"Now is the time to work together. We must redouble our efforts to confront successfully citizens' demands," President Fox
"This is a mandate for dialogue, restraint and building agreements. If the citizens didn't vote for a majority, we'll have
to build one through co-operation with the political forces and the government. That is the mandate we have received today."
The Sunday election - the first since Mr Fox took power - was seen as a referendum on his presidency, halfway through his
His unfulfilled campaign promises include the creation of one million jobs a year, making the economy grow 7%, and
The president's term has also been blighted by the country's decade-old guerrilla problem in the southern state of Chiapas.
Villagers armed with machetes in Chiapas caused 21 of 36 polling stations to be shut down
President Fox maintains popularity
But Mr Fox remains popular, largely for changes he has decreed to fight drugs and corruption, and for opening government
intelligence files on the "dirty war" waged against accused leftists during the 1970s and 1980s.
He also extradited former Argentine general, Ricardo Miguel Cavallo, to Spain where he is charged with genocide and terrorism.
President Fox is attempting to push through economic reforms, like opening up the oil industry to private investment and
overhauling the taxation system.
Despite losing its presidency in 2000 after enjoying single party rule for 71-years, the PRI maintained control of the
Chamber of Deputies, and with it, the ability to thwart most of President Fox's sweeping reformist agenda.
As such, these and future reforms introduced by President Fox are now more likely than ever to remain on hold.