Portugal's Social Democrats unseated the Socialist government in an emphatic election victory Sunday, giving the centre-right party a chance to enact a grinding austerity program amid a $114-billion financial bailout.

Jose Socrates, the Socialist leader and the country's prime minister for the past six years, conceded defeat long before official results were in.

Social Democratic Leader Pedro Passos Coelho, expected to be Portugal's next PM, will have a crisis on his hands when he takes office. ((Paulo Duarte/Associated Press))

"The Socialist Party lost these elections," Socrates said in a speech, adding he would resign as party leader.

The Social Democratic Party elected 105 legislators in the country's 230-seat parliament, compared with 73 for the second-placed Socialists. The Social Democrat share represented about 39 per cent of the vote. The centre-left Socialists' share was 28 per cent.

The Social Democrats had asked for a clear endorsement at the ballot box that would give them a strong mandate to hike taxes, cut welfare and introduce longer-term economic reforms such as making it easier to hire and fire workers — a proposal parties on the left have balked at.

But the results leave the Social Democrats just shy of an absolute majority in the legislature, meaning it will still need approval of another party for its policies.

Social Democrat leader Pedro Passos Coelho, probably the country's next prime minister, may invite the smaller, conservative Popular Party to form a coalition government and bolster his party's support. The Popular Party snared 24 seats.

Turnout was around 60 per cent, in line with recent elections.

Bailout spelled doom for government

As in Ireland, where the governing party lost heavily in an election after taking a bailout, the Socialists appeared to pay heavily for the country's economic downturn.

The Social Democrats now face the formidable task of trying to nurse the debt-wracked country of 10.6 million back to financial health after a decade of negligible growth.

The next government inherits a record jobless rate of 12.6 per cent and an anticipated economic contraction of four per cent over the next two years in what is already one of Europe's poorest countries.

And Portugal still hasn't escaped the possibility of a financial catastrophe.

Any sign that Portugal is not abiding by the terms of its bailout agreement with its eurozone partners and the International Monetary Fund will likely add fuel to Europe's debt crisis. There are already signs of bailout fatigue among the Continent's wealthier countries, with Greece's financial future remaining uncertain as its original bailout appears too small.

This weekend's election — the country's second in two years — came after months of political squabbles over how best to reduce the debt burden. Opposition parties refused to accept the Socialist government's austerity plans, prompting the administration to resign and worsening Portugal's financial plight.