Opposition leader Stefan Lofven gestures while speaking at the election night party of the Social Democrats, in Stockholm, Sweden, on Sunday, Sept. 14, 2014. Sweden's Social Democrats were poised to return to power as the leaders of a left-leaning bloc that defeated the center-right government in a parliamentary election Sunday, but without an absolute majority. (AP Photo / News Agency TT, Claudio Bresciani) SWEDEN OUT

Sweden's Social Democrats are poised to return to power after a left-leaning bloc defeated the centre-right government in a parliamentary election that also saw strong gains by an anti-immigration party.

With more than 99pc of districts counted, the Social Democrat-led Red-Green bloc had 43.7% of the votes yesterday while the governing coalition got 39.3pc, official preliminary results showed.

The anti-immigration Sweden Democrats party more than doubled its support to 13%, leaving it with the balance of power in parliament.

The result marks the end of an eight-year era of tax cuts and pro-market policies under Fredrik Reinfeldt, who said he would resign both as prime minister and leader of the conservative party. Many Swedes worried that his tax cuts have undermined the country's famed welfare system.

"There's something that is falling apart in Sweden," Social Democrat leader Stefan Lofven said cheering supporters at a rally in Stockholm after most of the votes had been counted. "Tonight Sweden has answered that we need change."

The 57-year-old former union leader is expected to enter into coalition talks with the Social Democrats' partner in the Red-Green bloc, the environmentalist Green Party, and potentially also the ex-communist Left Party.

But unless he is able to recruit one of the centre-right parties in Mr Reinfeldt's Alliance, he could face a situation where the Sweden Democrats and the Alliance jointly strike down key proposals.

"We are now Sweden's third biggest party," Sweden Democrats leader Jimmie Akesson told jubilant supporters. The once radical far-right party entered parliament four years ago with 5.7pc support.

Despite the gains, the Sweden Democrats are unlikely to attain their main goal of sharply reducing immigration because all the other parties are in favour of a liberal asylum policy.

This year, Sweden expects up to 80,000 asylum-seekers from Syria, Eritrea, Somalia, Afghanistan, Iraq and other countries - the highest number since 1992.

The rise of the Sweden Democrats has unnerved many Swedes, who regard the party as racist despite its efforts to soften its rhetoric under Mr Akesson.

Smaller, more extreme groups are also trying to advance their positions in Sweden, including a neo-Nazi group that police said entered a handful of polling stations in Stockholm on Sunday, allegedly intimidating voters by filming them, shouting slogans and spreading confetti with political messages.

The group confirmed on its website that its activists had entered polling stations after burning ballots and an Israeli flag at a rally in downtown Stockholm.

A small feminist party that an exit poll suggested could enter parliament failed to reach the 4% threshold, finishing with 3.1%, the official results showed.

Mr Reinfeldt, who took office in 2006, is the longest-serving conservative prime minister in Swedish history. His centre-right Alliance has cut income and corporate taxes, abolished a tax on wealth and trimmed welfare benefits. It has also eased labour laws and privatised state-owned companies, including the maker of Absolut vodka.

Meanwhile, the gap between rich and poor has grown faster in Sweden than in most developed countries, though it remains among the world's most egalitarian, according to the Organisation for Economic Co-operation and Development (OECD).

"I hope that there will be a change," said Jonathan Andersson, a 25-year-old chef in Stockholm who blamed the government for his problems finding a "proper" job. "They changed the employment law and now I just get temporary work."

Martin Holmen, a volunteer campaign worker for Mr Reinfeldt's Moderate Party, said many voters did not give the government enough credit for making Sweden's economy one of the strongest in Europe.

"We have had the deepest economic crisis since the 1930s. But people in Sweden have hardly noticed it," Mr Holmen said. "That's a very good grade for the Alliance."

PA Media