David Cameron has been elected as the new Conservative leader by a margin of more than two to one over David Davis.
The 39-year-old beat Mr Davis by 134,446 votes to 64,398 in a postal ballot of Tory members across the UK.
The Old Etonian, an MP for only four years, said the Tories must change and be in tune with today's Britain with a "modern compassionate Conservatism".
His defeated rival, Mr Davis, said the leadership contest had been a preamble to a Conservative election victory.
He hailed Mr Cameron as the next Tory prime minister and said the race had made the party look thoughtful and mature.
He is 39 years old
Married to Samantha, one son, one daughter
Educated at Eton College and Brasenose College, Oxford
Special adviser to Cabinet ministers Michael Howard and Norman Lamont in the 1990s, then communications director at Carlton television
Became MP for Witney in 2001
Tory campaign coordinator at general election, then shadow education secretary
The result ends a seven-month wait. Outgoing leader Michael Howard said he was quitting after May's election.
The election result was declared at the Royal Academy in London by Sir Michael Spicer, chairman of the 1922 committee of Tory backbenchers.
Party members were sent postal ballots a month ago ahead of a series of televised debates and private hustings.
Mr Davis, 56, began the contest as the bookmakers' favourite but a lacklustre speech at the Conservative annual conference in Blackpool dealt what turned out to be a fatal blow to his challenge.
As he celebrated victory, Mr Cameron said his party now had to change how they looked, felt and behaved, including stopping "grumbling about today's Britain".
He said he was "fed up with the Punch and Judy politics of Westminster" and vowed to support government policies with which he agreed.
The new leader said there was "something in the air" which meant voters were prepared to look at the Conservatives again.
Michael Howard announced he would stand down on 6 May, a day after election defeat
In the votes of MPs, Ken Clarke was first to be knocked out, then Liam Fox
David Davis topped the first poll of MPs but was overtaken by David Cameron in the final round
The final decision made by the 253,600 Tory members
Of those 198,844 voted, 134,446 for Cameron, 64,398 for Davis
"People in this country are crying out for a Conservative Party that is decent, reasonable, sensible, common sense and in it for the long term of this country and that is the party we are going to build," he said.
Mr Cameron said there was still a "vast mountain to climb" but the Tories could return to government.
He set out core challenges for his leadership: creating a full-bodied economic policy which went beyond just tax; giving freedom to those on the frontline in public services; national and international security; and ensuring social justice by strengthening the voluntary sector.
Labour was not capable of meeting those challenges, he claimed.
"They are yesterday's men with yesterday's measures," added Mr Cameron.
BBC political editor Nick Robinson said Mr Cameron's victory showed Tories were "coming to terms with Tony Blair".
Front bench choices
Attention is now shifting to whom Mr Cameron chooses for his shadow cabinet.
He has already appointed his chief whip - West Derbyshire MP Patrick McLoughlin. He replaces David Maclean, who has decided to return to the back benches.
Supporters of Mr Davis are demanding a "major role" for their contender.
Weekend newspaper reports suggested Mr Cameron was preparing to demote Mr Davis from his current job as shadow home secretary if he won.
But Mr Cameron said Mr Davis would be "a vital part of the team in the future".
William Hague is also expected to be asked to take a shadow cabinet job.
The new leader will face Tony Blair at prime minister's questions on Wednesday.
But most commentators expect Mr Cameron to fight the next election against Gordon Brown. Mr Blair has already said he will step down before the election.
Mr Brown dismissed claims that a young opponent would make him look old.
"I think that's a bit unfair, as the father of a two-year-old I feel pretty young," he told BBC Radio 4's Today programme.
Mr Brown said it was policies which counted at the polls.
"I don't see much evidence other than a rebranding of existing policies at the moment," he argued.
Liberal Democrat president Simon Hughes congratulated Mr Cameron on his victory.
But he said the odds of a Tory election win were still pretty small, especially as the party had greeted four leaders in recent years with similar fanfares.