Independent Kerryn Phelps (pictured) has ended over a century of Liberal dominance in the Sydney seat of Wentworth, forcing Scott Morrison into minority government.
At 7.15pm, the high-profile GP was predicted to defeat Liberal candidate Dave Sharma in the by-election to replace Malcolm Turnbull.
With votes still being counted, the AEC has Dr Phelps holding almost 58 percent of the two-party preferred vote on the back of a massive swing against the Liberals.
Mr Turnbull quit parliament in August shortly after fellow Liberals turned on his leadership in a failed bid to install Peter Dutton but later endorsed Mr Morrison.
"This is a bad night for the Liberal Party," Liberal MP Trent Zimmerman told the ABC.
Mr Morrison will have to seek the support of Dr Phelps or another crossbench member in order to be assured of confidence on the floor of parliament.
Mr Zimmerman said the government already had guarantees of confidence and supply from crossbench members.
Dr Phelps earlier described talk of her toppling the Morrison government as "pathetic scaremongering".
Labor deputy leader Tanya Plibersek said the size of the swing was "historic".
"This shows the values of Scott Morrison are not the values of Wentworth," she said.
She said Labor, whose candidate Tim Murray was sitting on 11.3 percent of the primary vote, had "realistic expectations" about his chances in the blue-ribbon Liberal seat.
Mr Turnbull's son Alex tweeted that it was a "great day for Australian democracy". The entire Liberal Party function room booed him when it was shown on television screens.
Attending Dr Phelps' function, her daughter Jaime Chambers said she was excited but nervous.
"I've never been so proud, she's done so many incredible things in her life and in her career and this has got to take the cake."
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