Election 2010: First hung parliament in UK for decades
David Cameron: "The Labour government has lost its mandate to govern our country"
The Conservatives have won the most MPs in the UK general election but fallen short of a majority, leading to the first hung parliament since 1974.
As counting continues the Tories have gained 92 seats, Labour have lost 86 and the Lib Dems six, despite hopes of a breakthrough for the third party.
The battle is now under way to see which leader can form a government.
Lib Dem leader Nick Clegg said the situation was "fluid" but the Tories had the first right to seek to govern.
Arriving back at Lib Dem headquarters in London, he said: "It is vital that all parties, all political leaders, act in the national interest and not out of narrow party political advantage."
He said he "stuck by" his view that the party with the biggest mandate - in terms of votes and seats - should have the right to seek to govern first. "It seems this morning, that it's the Conservative Party that has more votes and more seats though not an absolute majority.
"I think it's now for the Conservative Party to prove that it's capable of seeking to govern in the national interest."
Conservative leader David Cameron will make a statement at 1430 BST in which he will set out how he will seek to form a government that is "strong and stable" with broad support that acts in the national interest.
The Tories have won 291 seats so far but it is now not possible for them to reach the 326 seats needed to win an overall majority.
Mr Brown, whose party has 251 seats so far, has returned to Downing Street with aides and is expected to make an offer to Mr Clegg's Lib Dems, who have so far won 51 seats, to try to form a coalition government.
He said earlier: "My duty in all of this is that there be a stable, strong and principled government and to play my part in making that possible.
Downing Street has authorised the civil service to support other parties in hung parliament negotiations - essentially giving the go-ahead for talks to begin.
The BBC projection suggests David Cameron's Conservatives will have 306 seats. If there are 10 Unionists elected in Northern Ireland then Mr Cameron might be able to command 316 - probably still slightly too few for him to be sure of winning a Queen's Speech.
But Labour and the Lib Dems together would have 317 seats, according to the BBC figures, which even with three SDLP MPs would still leave them at 320 - again a few votes short of a majority
Senior Labour figures have said that under the rules of Britain's constitution, the sitting prime minister in a hung parliament makes the first attempt at forming a ruling coalition.
Business Secretary Lord Mandelson said Mr Brown had returned to Number 10, and was going to rest and "catch his breath" adding: "We have to be patient for some time more."
Iain Watson, BBC political correspondent
Downing St sources say the basis for a deal with the Lib Dems exists, with electoral reform and the economic recovery at its core. They intend to take their "first shout" at forming a government. They have not spoken yet to Mr Clegg and are aware he might rule out any deal but believe the Lib Dems are "shell shocked". They will not speak to Mr Clegg until all the results are in, as their combined seats would have to add up to more than the Tory total to have any legitimacy. Mr Brown is apparently napping to "keep energy levels up". They say it's a testament to the campaign that they can seriously discuss forming a government. Mr Brown hasn't discussed his own future with advisers.
"It's not possible to make definite claims or reach final conclusions about the outcome of the election because there are results still to come in," he said.
"You could say the electorate have voted for change but what they haven't done is voted decisively in favour of the Conservatives."
Asked if it would be "inconceivable" to have a Labour minority or coalition government which did not have Gordon Brown as prime minister, Lord Mandelson said: "Frankly there are quite a number of permutations."
But he added it was "premature" to "start getting into hypotheses".
Shadow schools secretary Michael Gove said voters would not be "entirely happy" if Mr Brown "after a defeat like this, were to try to cling on and try to form some sort of coalition of the defeated, some sort of alliance of the dispossessed".
He said: "David Cameron has secure a larger number of votes and a larger share of the votes than Tony Blair secured in 2005 when he became prime minister. The logical next step is for David Cameron to form a Conservative-led government."
Mr Clegg - whose party have not performed as well as expected after a poll surge for the Lib Dems after the first live TV debate - cautioned other leaders against "rushing into making claims or taking decisions" which did not stand the test of time.
He urged everyone involved to "take a little time" to ensure people got the government they deserved during these "difficult times".
Gordon Brown speaks after holding his seat in Kirkcaldy and Cowdenbeath
But he admitted it had been a "disappointing night" for the Lib Dems.
The Conservatives are predicted to take 297 seats in England, with Labour on 194 and the Lib Dems on 41. The Tories have also made significant gains in Wales - where Labour also regained their former stronghold Blaenau Gwent - but the Lib Dems and Plaid Cymru failed to gain target seats.
But in Scotland the Tories failed to make a significant breakthrough, while the Labour vote held up, with the party re-taking two seats it lost in by-elections - Glasgow East and Dunfermline and West Fife. The SNP and Lib Dems fell short of their targets.
Northern Ireland's First Minister, DUP leader Peter Robinson lost his seat in the first shock result of the night. The other main unionist leader - the UUP's Sir Reg Empey, was also defeated in South Antrim.
With 17 of 18 Westminster seats declared - the DUP have eight, Sinn Fein have four, the SDLP have three, the Alliance Party has one and one has gone to an independent.
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