Helen Clark has stood down as leader of the Labour Party after losing the election to National.
Clark, who served for the last nine years as Prime Minister, made the announcement in her concession speech in Auckland tonight.
She expected the party to elect a new leader by Christmas.
John Key will be New Zealand's 38th prime minister, after National swept to power on the back of a powerful mood for change.
In his victory speech a clearly exhilirated Key thanked New Zealanders for electing a National Government, but also paid tribute to Clark.
"I can't tell you how good it is to be here," he bellowed over loud cheers from supporters.
"Ladies and gentlemen, today New Zealand has spoken. In their hundreds of thousands across the country, they have voted for change
"I can tell you there will be a new National-led government in New Zealand.
"So let me start by thanking every New Zealander who has cast their vote for National today.
"Thank you for your support and thank you for your trust. Some of you have stuck with National through nine long years and tonight your patience has been rewarded.
"For others, you have heard National's message that New Zealand can do better and you have come to share our beliefs.
"So to all of you, I simply say thank you."
He said New Zealanders had voted for a better life.
"They voted for hope, they voted for action, and they voted for results."
Key paid tribute to Clark's ferocious work ethic and her commitment to New Zealand.
Key said he had spoken to ACT leader Rodney Hide and UnitedFuture leader Peter Dunne and said he would be talking to the Maori Party next week.
He said that while the details of any formal agreement betweent National Act and United Future were yet to be resolved, he could confirm their willingness to lend support to a National-led Government.
Labour leader and outgoing prime minister Helen Clark telephoned Key to concede at 11pm with 98% of the vote counted as it became clear Labour had no chance of forming a government.
The announcement was greeted with cheers and shouts of joy at Nationals election night party at Sky City Convention Centre, where around 1000 party supporters have gathered to toast National's victory.
National currently has 45% of the vote, entitling it to 59 seats in Parliament just short of an outright majority. But adding in the five seats ACT has won with 3.7% of the vote and United Future leader Peter Dunne's one seat, a National-led administration has a three-seat majority of 65 seats in a 122-seat Parliament.
Labour has 33.7% of the vote, entitling it to 43 seats, while the Greens have 6.2%, giving the party eight seats.
The Maori Party has won five of the seven Maori seats one more than it currently holds, despite winning only 2% of the party vote.
Jim Anderton has held his Wigram seat for the Progressive Party.
The night saw the end of several political dynasties, including New Zealand First leader Winston Peters, who failed in his bid to recapture Tauranga and fell short of the 5% threshold for seats in Parliament.
The tidal move against Labour saw five of its ministers lose their seats Steve Chadwick in Rotorua, Judith Tizard in Auckland Central, Damien OConnor on the West Coast, Darren Hughes in Otaki, and Harry Duyenhoven in New Plymouth.
The atmosphere was in marked contrast to Labours election night party at the Dalmatian Cultural Centre in Clark's Mount Albert electorate, where supporters numbered under 100. It was a sombre and quiet night for Labour supporters, whose big city Auckland booths failed to rescue the party as they did in 2005.
A jazz band played in the corner for much of the evening, with the sound on the big-screen televisions turned off. Pensive supporters sat around willing Labours party vote to rise and it did, but not beyond 33%.
- The Press