Israeli Prime Minister Benjamin Netanyahu
Israeli Prime Minister Benjamin Netanyahu has pledged to form "as broad a government as possible" after his alliance won a narrow election victory.
His right-wing Likud-Beitenu bloc will have 31 seats in parliament - a sharp drop from 42, exit polls suggest.
In a major surprise, the centrist Yesh Atid (There is a Future) party came second with a predicted 18-19 seats, with Labour next on 17, reports the BBC.
Analysts now predict weeks of political horse-trading to form a new cabinet.
They say that there is even a possibility that Netanyahu's bloc would end up being in opposition.
Thirty-two parties were competing under a system of proportional representation for the 120-member Knesset.
Parties must win at least 2% of the total vote to secure seats.
Full election results are expected on Wednesday, and the official ones will be announced on 30 January.
Speaking shortly after the voting ended on Tuesday, Netanyahu thanked the voters "for the opportunity to lead the state of Israel for the third time".
Likud-Beitenu supporters cheered as exit polls came out. "We're happy we're still the biggest party," one woman told me. "Thirty-one seats is better than the 27 we thought," added a man, Daniel, referring to the projected results.
But if the forecasts are right, this election result will surely disappoint Netanyahu. He called early elections - and teamed with the ultra-nationalist Yisrael Beitenu - hoping to build a stronger coalition and it appears to have had the opposite effect.
Two rising stars of the election come from different parts of the political spectrum. The far-right Jewish Home party of Naftali Bennett could have a dozen seats while centre-left TV celebrity Yair Lapid could have as many as 19. By contrast, Labour, one of Israel's well-established parties appears to have failed to live up to earlier expectations of a resurgence.
While the expectation remains that Netanyahu will be asked to try to form the next government, these new shifts in Israeli politics will change its dynamics.
In an apparent reference to his electoral setback, the prime minister promised to reach out to "many partners" to form a wide coalition.
"Tomorrow we start anew," he said.
He also said that preventing Iran from obtaining nuclear weapons remained the government's first challenge.
Other top priorities, he added, would be stabilising the economy, striving for peace in the region, more egalitarian military and civilian services and reducing the cost of living.
In a brief speech, Yisrael Beitenu leader Avigdor Lieberman said: "I'm happy that our two main missions were achieved. We have ensured a continuity in the rule of the national camp and the continued leadership of Prime Minister Netanyahu."
Netanyahu is now widely expected to seek an alliance with a new nationalist party, Habayit Hayehudi (Jewish Home), which is projected to have 12 seats.
The party - led by Netanyahu's former chief-of-staff Naftali Bennett - has been recently challenging Likud-Beitenu's dominance on the right.
Analysts say the 18 or 19 seats predicted for Yesh Atid, headed by journalist-turned-politician Yair Lapid, is a stunning result for a newcomer.
Lapid has said he will not join Netanyahu's team unless the prime minister promises to push for peace with Palestinians.
"We have red lines. We won't cross those red lines, even if it will force us to sit in the opposition," Yaakov Peri, one of Yesh Atid's leaders, told Israeli TV.