The referendum was called amid concerns that wealthy businessmen - known as oligarchs - have too much influence in Latvia due to their close personal and business links to lawmakers.
Almost 95% of voters on 23 July backed a call from President Valdas Zatlers to dismiss lawmakers. Zatlers' Reform Party, founded in June, is riding high in first place in the latest opinion polls, closely followed by the pro-Russian Harmony Centre, pushing Prime Minister Valdis Dombrovski's Unity party into third.
The former president's move was designed to target moneyed interests in parliament. Zatlers called the referendum after the legislature refused to lift the immunity of 'oligarch' lawmaker Ainars Slesers, thereby hampering a corruption probe. Slesers is leader of a pro-business opposition party and one of Latvia's richest men.
"I believe this is a good opportunity to ensure that parties which represent oligarch interests or vote in the interest of oligarchs will not have the majority in the next parliament," Prime Minister Valdis Dombrovskis told journalists after the vote.
Zatlers and Dombrovskis are seeking to weaken oligarchs who amassed wealth and power when Latvia sold state assets after the collapse of the Soviet Union.
The Baltic country has been struggling to emerge from a deep recession that has seen economic output drop by nearly one quarter in the past three years, and led to unemployment of nearly 25%.
Unity expects to join the Reform Party in the next government and wants to continue its policy of cutting the budget deficit while keeping so-called oligarchs out of power, said Defence Minister Artis Pabriks, a party board member.
Dombrovskis helped implement austerity measures equal to 16% of GDP after Latvia turned to the EU and International Monetary Fund for a 7.5 billion-euro ($10.6 billion) bailout in 2008.
Zatlers, who has endorsed Dombrovskis's austerity policies, has said he wants to nominate his own candidate for prime minister after September's general election.