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The majority in what was once regarded as a Tory stronghold was reduced to 1,227 - a quarter of that won by Piers Merchant in the General Election on May 1.
Labour's Robert Hughes polled 11,935 votes, while Rosemary Vetterlein, standing for the Liberal Democrats, recorded 5,864 votes.
The turnout was significantly down on the General Election at 44%: almost a third less. Mrs Lait said fewer people voted because it was a by-election and because it was raining.
She said the Conservatives won because the party "fought this campaign on the grounds of the issues that they (the voters) raised with us."
Mr Hughes, who was also Labour's losing candidate in Beckenham on May 1, called the result a hollow victory for the Tories.
He said Beckenham had once been one of the Conservative's safest seats, but now their majority was negligible.
"It is a slap in the face for William Hague," he said.
The Shadow Health Secretary, John Maples, said he was "absolutely delighted" by the outcome. He said the turnout might have been low because the electorate felt a bit of resentment against the local Conservative party over the situation involving Mr Merchant.
The by-election was caused when Mr Merchant resigned after admitting to having an affair with a teenage former nightclub hostess who was acting as his researcher - an affair he had repeatedly denied.
In Thursday's poll, the Tories recorded 41% of the vote, a fall of 1% since the General Election on May 1. Labour managed to increase its proportion of the vote by 4% to 37%, while the Liberal Democrat's share stayed roughly the same at 18%.
The Conservative majority was 3.85%. There was a 2.6% swing to Labour from the Conservatives. The turnout was 31,908.
Ms Lait, former Parliamentary Private Secretary to Mr Hague and a one-time party whip, stood in Beckenham after losing her seat of Hastings and Rye at the General Election.
Votes for each of the Beckenham candidates:
Lib Dems win Winchester: vote up 26%
'Sleaze' haunted Tories in Beckenham
(From Special Report)
Beckenham - Constituency and candidates
(From Special Report)
Conservative Party
Labour Party
Liberal Democrat Party
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