Canada's prime minister-elect, Stephen Harper, has promised to honour campaign promises of change and reform, after 12 years of Liberal rule.
Stephen Harper has promised to lower taxes
Mr Harper's Conservatives won Canada's general election, but will have to seek allies in parliament after failing to win an overall majority.
Mr Harper aims to cut taxes, tackle corruption and clamp down on crime.
But correspondents say the failure to score a major victory may temper the authority of Mr Harper's government.
Outgoing prime minister and Liberal party leader Paul Martin announced his decision to step down as party leader after conceding the election to Mr Harper in a late-night phone call.
On the campaign trail Mr Harper repeatedly attacked the Liberals over a string of corruption scandals.
The election was called following revelations that Liberal politicians in Quebec had taken kickbacks in return for awarding government contracts.
At a victory rally in his western heartland of Calgary, Mr Harper again stressed his hope for a sea change in national politics.
"Tonight, friends, our great country has voted for change," he said.
He pledged an immediate 1% cut in national sales tax, a new vigour in fighting crime and gang violence, and a re-evaluation of relations with Washington, which have become strained in recent years.
Extra funds would be released for child care and into the healthcare system, Mr Harper said.
There would also be a renewed drive for federalism for Francophone Quebec.
"We will do this because shuffling the deck in Ottawa is not good enough," Mr Harper said.
Overall the Conservatives won 124 seats, the Liberals 103, the Bloc Quebecois 51 and the New Democratic Party 29, official results showed after counts at Canada's 66,000 polling stations.
Cut in national sales tax
Reform of justice system
New accountability rules to root out corruption
New funds for childcare and healthcare
"New voice" for Quebec federalism
Closer ties with Washington
The Conservatives made significant gains in Ontario, Canada's most populous province, and in Quebec.
Mr Harper's party had 36% of the vote and the Liberals 30%.
Despite enjoying a comfortable lead in opinion polls throughout the campaign, the party fell well short of the 155 seats needed for an outright majority in the 308-seat parliament.
However, history suggests that minority governments in Canada struggle to push legislation through parliament, with few minority administrations lasting longer than 18 months.
There was lukewarm support for the Conservatives from the New Democratic Party (NDP), which won 29 crucial seats in parliament, a gain of 11 from the previous election in 2004.
NDP leader Jack Layton said his party would act to "balance" Mr Harper's party.
In front of downcast supporters in Montreal, Liberal leader Paul Martin congratulated his rival and called time on his years as Liberal leader, pledging an "orderly transition".
Paul Martin lost a confidence vote late last year
"We differ on many things, but we all share the belief of the potential and the promise of Canada and the desire of our country to succeed," he said.
Among the incoming MPs was Harvard professor and author Michael Ignatieff, who has been tipped as a possible future Liberal leader. He won his seat in a Toronto suburb.
*Increased to 15 seats in 2002 after two by-elections and the admission of a New Democrat MP
**Reduced to 98 after defection of an MP
Total seats in Canadian Parliament: 308