Prime Minister Atal Behari Vajpayee resigned after his ruling coalition of 22 parties failed to win the mandate of the people.
Congress Party leader, Italian-born Sonia Gandhi, has emerged as the prospective prime minister of the country.
The Congress Party and its allies won 219 seats in a house of 543 members. With the assured support of the 63-member strong Communist parties, the Congress Party will form the next government.
Vajpayee had called snap elections six months ahead of schedule to exploit the economic boom and peace moves with Pakistan.
Accepting the verdict, Vajpayee said, "My party and alliance may have lost but India has won."
"Over the next few days the process of government formation will gather momentum," Gandhi told reporters.
Gandhi said the new government would continue the ongoing peace process with Pakistan. "From the very beginning we have been supporting Prime Minister Vajpayee's initiative vis-a-vis Pakistan," she said.
India's federal elections concluded Monday and more than 350 million people cast their votes.