Lebanon will release official results of the parliamentary election, but the unofficial results show that allies cost Hezbollah that, was expected to get a narrow win, a majority in the closely contested votes.
Final results are not due until later on Monday, but unofficial results projected the coalition, led by Saad al-Hariri, would win 70 seats in the new 128-seat assembly against the Hezbollah-led alliance's 58 seats.
Supporters of the coalition celebrated into the early hours after voters renewed their majority in parliament.
Hezbollah and its allies swept the vote in mainly Shi'ite areas, but defeat of their Christian ally, Michel Aoun, in two key districts deprived the alliance of the majority many had predicted.
Saad al-Hariri, the leader of "March 14", emerged from the poll as frontrunner to lead the new government.
"Congratulations to Lebanon, congratulations to democracy, congratulations to freedom," the billionaire politician said in a victory speech at his mansion in Beirut shortly after midnight.
"There are no winners and losers in this election, the only winner is democracy and the biggest winner is Lebanon," Hariri, 39, said.
Lebanon's Interrior Minister Ziad Baroud said preliminary figures showed a turnout of more than 54 percent, a high figure for Lebanon, where hundreds of thousands of the 3.26 million eligible voters live abroad.
The Hezbollah alliance, known as the March 8 movement, has not officially conceded, but its main Christian ally, the nationalist Free Patriotic Movement (FPM) led by Michel Aoun, a former army chief, did acknowledged defeat.
"We have lost the election," conceded a senior politician close to the bloc of groups Hezbollah and Amal and Christian ally Michel Aoun.
"We accept the result as the will of the people."
Aoun held the biggest bloc of Christian MPs in the outgoing assembly.
The real electoral battle centred on Christian areas, where Aoun was up against former President Amin Gemayel's Phalange Party, Samir Geagea's Lebanese Forces and independents.
According to unofficial results, Prime Minister Fouad Siniora won a parliamentary seat in the mainly Sunni southern city of Sidon.
Siniora, 66, has headed the cabinet since the Hariri-led coalition won the 2005 parliamentary election, but is not expected to keep his post.
Voting was relatively trouble-free across Lebanon, although there were many reports of vote-buying before the poll, with some Lebanese expatriates being offered free air tickets home.
Security was tight, with 50,000 troops and police deployed across Lebanon, especially in the most contested districts.
Security sources said one person was wounded by gunfire in the northern city of Tripoli and there were brawls between rival supporters elsewhere, but no reports of serious fighting.
Hezbollah MP Hassan Fadlallah said any new government had to be based on partnership, not on one side monopolising power.
"Whatever the results of the election, we cannot change the standing delicate balances or repeat the experiences of the past which led to catastrophes on Lebanon," he told Reuters.
"Whoever wants political stability, the preservation of national unity and the resurrection of Lebanon will find no choice but to accept the principle of consensus."
A Lebanese alliance including Hezbollah should take part in a new government, leading politician Walid Jumblatt said on Sunday.
But the Druze leader, a leading figure in the anti-Syrian "March 14" alliance, told Reuters he did not support the idea of veto power in the new cabinet for the rival coalition, which politicians on both sides told Reuters had lost the election.
"I said no to the blocking minority," Jumblatt said.
Asked whether he supported the participation of the opposition alliance in government, he said: "Yes, but I cannot decide on my own. I am part of a coalition and it should be a unanimous decision."
Hezbollah and its allies demand being given veto power in a unity cabinet.