
The Conservatives are on course to be the largest party in a hung parliament, after nearly 400 election results.
Tory leader David Cameron said it was "clear that the Labour government has lost its mandate to govern".
The Lib Dem vote was up 0.9% on 2005 and Labour down 6.4% after 399 results. The Conservatives are up 3.9%.
Although Labour are set to lose over 90 MPs, Gordon Brown said he wanted to play a part in the UK "having a strong, stable and principled government".
Downing Street says the Labour leader, re-elected in Kirkcaldy and Cowdenbeath, will try to form a coalition in the event of a hung Parliament.
But shadow foreign secretary William Hague says any attempt by Brown at securing a pact with Lib Dems "would be a shameless piece of politics".
And the electoral maths suggests that between them there would not be enough Labour and Lib Dem MPs to form a majority government.
In other election night news:
- Northern Ireland's first minister and DUP leader Peter Robinson has been defeated in East Belfast by the Alliance party
- Jacqui Smith, who had to stand down as home secretary over her expenses, lost her Redditch seat to the Conservatives
- Esther Rantzen failed to win in Luton South, which went to the Labour candidate
- Lib Dem frontbencher Lembit Opik has lost his Montgomeryshire seat after suffering a 13.2% swing to the Conservatives
- Independent Richard Taylor was beaten by the Conservative candidate in Wyre Forest
- There were angry scenes and calls for an inquiry after people were turned away from polling stations as long queues formed ahead of the 2200 BST voting deadline.
Despite being neck-and-neck with Labour and the Conservatives for much of the campaign, the Lib Dems have so far failed to significantly increase their vote on the 2005 general election.
Turnout is running at 65.2%, a modest increase on the 2005 general election.
A joint BBC exit poll for the BBC/ITV/Sky suggested the Conservatives would be 21 seats short of an overall majority.
But results so far suggest the election is on a knife-edge and BBC Political Editor Nick Robinson said a lot will depend on David Cameron's "capacity to build a coalition".
'New leadership'
The Tory leader may not win enough seats to rely on the support of Democratic Unionists in Northern Ireland alone to form a working majority.
After winning his Witney seat with an increased majority, Mr Cameron said it was clear from the results announced that the country wanted "change" and that would require "new leadership".
Promising to put the "national interest first," Mr Cameron said he would aim to bring about "strong, stable, decisive and good government".
But senior Labour figures were talking openly about trying to remain in power by forming a coalition with the Lib Dems and other parties to maintain "strong and stable government".
Foreign Secretary David Miliband it was "reasonable and right" that parties attempted to work together to form a government in the event of a hung parliament.
He told BBC News: "As far as I can see, the exit poll projection suggesting that no party would win this election is being borne out.
"If indeed no party has won an absolute majority then it seems to me perfectly reasonable and right that parties should talk to each other to see if they can find common ground to establish a strong and stable government. There's no harm in that.
"It's a good thing to do when the voters have clearly not embraced any of us and given us the absolute majority that we are all seeking."
Protests
Mr Brown's spokesman said it was "too early to say" what he would do, but sources have indicated he is ready to embark on talks aimed at piecing together a coalition.
Under the rules of Britain's constitution, the sitting prime minister is allowed to try to form a government before the leader of the largest party, in the event of a hung Parliament.
The other big story of the night has been disturbances at polling stations in some parts of the country after higher than expected turnout led to lengthy queues.
Even before Houghton and Sunderland South became the first seat to declare there were widespread reports of people being unable to vote.
There could be legal challenges from candidates who have fallen a few votes short of victory and the Electoral Commission have launched an investigation.
In Sheffield police were called to move people on when voters staged sit-in protests after waiting hours to vote. The city's returning officer apologised but said he had to close the polls at 2200 BST.
Exit poll
NOP and Mori surveyed 17,607 voters at 130 polling stations across the UK for the BBC/ ITV/Sky exit poll.
The Conservatives would have 305 MPs, up 95 on 2005, Labour would have 255, down 94, and the Lib Dems 61, down 1. Nationalists and others would have 29, the survey suggests.
All exit polls have a small margin of error which could be significant in a tight election such as this one, in which the three main Westminster parties have been so close in the opinion polls. There could also be different voting patterns around the country.
The poll anticipates the Lib Dems will perform better in England than in either Scotland or Wales.
However, a fall in his number of MPs would still come as a blow to Lib Dem leader Nick Clegg, who has been neck-and-neck in the polls with the other two main parties for much of the campaign.
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