Sweden's centre-right leader Fredrik Reinfeldt has begun talks on forming a new government after his coalition narrowly won Sunday's elections.
Mr Reinfeldt has promised to reform the welfare state
The leader of the Moderate Party declared victory as near-complete results gave him a 1% lead.
Mr Reinfeldt, 41, has pledged to trim welfare spending and cut taxes.
His coalition's victory ended 12 years of Social Democrat rule. Prime Minister Goran Persson accepted defeat, saying his government would resign.
His centre-left party has led Sweden for all but 10 of the past 89 years.
Mr Reinfeldt, who promised to reform Sweden's cradle-to-grave welfare state, took to the stage in Stockholm in front of supporters with his arms raised late on Sunday.
"We ran in the election as the New Moderates, we have won the election as the New Moderates and we will also together with our Alliance friends govern Sweden as the New Moderates," he said.
Mr Persson said he would step down as party leader
"Tomorrow we will wake up to a new Sweden," he promised.
Mr Persson told his supporters he would step down as party leader in March 2007.
"We have lost the election but we are not a beaten party," he said. "We will never accept the right's change of system - we will hit back!"
Key issues in the election included whether Sweden's generous welfare model must reform for it to survive in the global economy.
Opinion polls had put the centre-right alliance consistently neck-and-neck with the Social Democrats.
The opposition says changes to Sweden's rigid labour market and high-cost welfare system are long overdue, and promises to cut both employer taxes and unemployment benefits.
It also wants to cut the large public sector, which employs 30% of the Swedish workforce.
Mr Reinfeldt has accused the government of disregarding the high unemployment rate and of failing to make Sweden internationally competitive.
The government maintains the unemployment rate is 6%, while the opposition says it is around 10%, taking into account the many people on sick leave and job training schemes.
Mr Persson has accused the opposition of wanting to destroy job security and make dangerous cuts to the welfare state.
He said this would undermine Sweden's unique social model - a cradle to grave welfare system and strong economic growth.