Voters appear to have returned the third left-leaning government in a year to the Nordic region as Denmark’s Social Democrats claimed victory in parliamentary elections with 25.9% of the vote.

The centre-left party finished clear of the centre-right Liberals of outgoing prime minister Lars Løkke Rasmussen, who improved on their 2015 score to reach 23.4%, and the populist, far-right Danish People’s party (DPP), which plunged to 8.7% – less than half its tally in the last election.

Although the Social Democrat-led “red bloc” of leftist parties won 91 seats in the 179-seat Folketing, against 75 for Rasmussen’s rival “blue bloc”, Mette Frederiksen, the Social Democrat leader, has said she intends to form a minority government with ad hoc support from parties across the spectrum.

Forming a coalition could prove difficult as other parties on the left mostly do not back the Social Democrats’ controversial immigration policies. Frederiksen has also rejected a proposal from Rasmussen to enter a “grand coalition” with his Liberals, although the two biggest parties have a majority between them.

Rasmussen conceded defeat on Wednesday night, saying he would hand his government’s resignation to Queen Margrethe on Thursday. “As things stand, Mette Frederiksen has a chance to form a government,” he said. “I don’t think it will be easy for her.” He said he would be “standing by the phone” for eventual coalition talks.

Frederiksen told a victory party that Denmark had “chosen a new majority, and a new direction … After tonight, we will put welfare first in Denmark again. Welfare, climate, education, children, future. Think of what we can do together. We now have the hope to change Denmark.”

The centre-left party focused its campaign on climate issues and the defence of Denmark’s prized welfare state, promising to reverse years of spending cuts to education and healthcare, and maintain its tough approach on immigration.

Long a benchmark for welfare, the Nordic social model has come under increasing pressure in recent years due to ageing populations. In Denmark, reforms have led to economic growth above the EU average, but successive budget cuts have left more people paying for services that used to be free.

Finland’s Social Democrats narrowly won elections in April on a promise to raise taxes to increase social spending levels, while Sweden’s centre-left party held on to power last year by pledging welfare reforms.

According to a Gallup poll published in February, 57% of Danish voters felt the incoming government should prioritise action on the climate crisis. For those aged between 18 and 35, the figure was 69%.

Denmark’s two biggest mainstream parties have in recent years adopted hardline anti-immigration policies previously the preserve of the far right, which immigrants and human rights campaigners believe have led to a rise in racist abuse and discrimination. Both the Social Democrats and Liberals have argued that stricter immigration policies were needed to protect the welfare system.

Frederiksen has refused to accept criticism of her stance on immigration. The Social Democrats have backed many of the restrictive immigration measures passed by the outgoing government, most of them at the instigation – and with the parliamentary support – of the far-right DPP.

These have included a ban on wearing the Islamic burqa and niqab in public, as well as a widely-criticised – if largely symbolic – “jewellery bill” that in principle allows police to seize refugees’ valuables to help pay the cost of their treatment by the state.

The nationalist, anti-immigration DPP, which has heavily influenced Denmark’s politics over the past two decades by supporting successive centre-right governments in exchange for tighter immigration policies, has lost support as the mainstream parties have increasingly adopted its discourse.

But the far-right party has also come under pressure from two new extreme-right parties, one of which, Stram Kurs (Hard Line), has called for Islam to be banned and hundreds of thousands of Muslims to be deported. It failed to reach the 2% threshold for a seat in parliament.