Prime Minister Jose Luis Rodriguez Zapatero defeated Mariano Rajoy's Conservative Popular Party for the second time in a row, gaining 43.7%, narrowly defeating the conservatives who garnered 40.1%, with almost all votes counted.
"The Spanish people have spoken clearly and have decided to start a new era without tension, without confrontation," the premier told a crowd of supporters in Madrid.
The socialists are set to receive 169 seats in the 350-seat lower house, compared to the conservatives' 153. Zapatero is likely to seek a coalition with the Catalan nationalist party, which won 10 seats, to bring his majority over the required 176.
The close-fought election saw Spanish voters divided on the economy, which has seen rising unemployment and mass layoffs in the construction sector over the past year, following several years of booming economic growth. The economy has been hard-hit by the sub-prime mortgage crisis in the United States.
Zapatero's first major decision as premier in 2004 was to pull Spanish troops out of Iraq. Since then he has opted for a relatively low-key role in international affairs.
The run-up to the vote was marred by the murder of a socialist politician, which the two leading parties have blamed on Basque separatist group ETA.
Isaias Carrasco was shot dead at the age of 42 on March 7, two days before the election, as he left his house in the Basque Country. He was killed in front of his wife and daughter. The gunman has not been identified.
The attack is likely to have contributed to the high turnout of 75.3%, as voters expressed their defiance against the Basque militant group.
