The nationalist Kuomintang, the KMT, won 81 of the 113 seats in Taiwan's parliamentary elections. Shui-bian's party, the DPP, won 27 seats, Xinhua, China's official news agency reported.
After the balloting was announced, Shui-bian resigned his post as party chairman, citing his party's failure in the election.
Under a new electoral system, voters elected half as many members of parliament as before in an effort to reduce corruption and improve efficiency, The New York Times reported Saturday.
The KMT seeks closer ties with China, which regards Taiwan as a renegade province, the BBC said. The election was seen as a strategic barometer for how Taiwan, a self-governing island, plans to deal with mainland China.