Opposition nationalists and their allies are poised to win a majority of seats in Croatia's general election.
Racan had said his re-election would ensure Croatia's EU future
With nearly all the votes counted, the Croatian Democratic Union (HDZ) of late President Franjo Tudjman was ahead of the centre-left Social Democrats.
The state electoral commission said HDZ and its two smaller allies would win 72 of the 140 seats in parliament.
The parties making up the governing centre-left coalition were said to be likely to take 65 seats.
HDZ leader Ivo Sanader hailed his party's "brilliant
"The voters showed that this government was a bad
experiment. Now it is up to us to restore faith in the
government, the way we restored faith in our party," said Mr
The BBC's Nick Hawton in Zagreb says the HDZ is the big winner in the poll, but may still need the support of smaller parties to form a government.
The centre-left coalition, led by Prime Minister Ivica Racan's Social Democrats, has not yet conceded victory to its opponents.
The outcome of the vote could have an impact on how quickly the European Union invites Croatia to join.
The new government will also face pressure to co-operate more with the United Nations war crimes tribunal, and to do more to bring about the return of thousands of Serb war refugees.
The projections from the electoral commission do not include up to 20 further seats allotted to minorities and Croatians abroad.
The election was Croatia's fourth since it gained independence in 1991.
More than four million people in the former Yugoslav republic were entitled to vote, including 400,000 who live outside the country.
President Tudjman led the country through the 1990s wars that led to the break-up of the old Yugoslavia.
His HDZ party has been in opposition for the past three years.
Mr Sanader, its new leader, claims the party has reformed from its more isolationist and nationalist policies of the past.
The party has also tried to exploit voters' frustration over the painful course of economic reforms launched by Mr Racan.
The current centre-left government had said that Croatia's speedy accession to the EU depended on it being re-elected.
Croatia applied for EU membership in February, and hopes to join the bloc in 2007.
Mr Racan acknowledged that if the projected results became reality, he stood no chance of forming a new government.
"If these results becomes final, that indeed means that
we won't be able to make a governing coalition," he
"In that case, I'd be able to congratulate to those
who would probably be able to form the government and wish