Outgoing Prime Minister Fredrik Reinfeldt's four-party 'Alliance' coalition won the election with 49% of the vote, compared to 45% for the centre-left opposition bloc.
However, with 173 seats, the Alliance fell just short of an overall majority of 175, meaning Sweden has a hung parliament.
Instead, the story dominating the media coverage was the unprecedented success of the Sweden Democrats (Sverigedemokraterna), a party with a strong anti-immigrant and Eurosceptic rhetoric.
Led by 31-year-old Jimmy Åkesson, Sverigedemokraterna look set to win 20 seats, a remarkable breakthrough for a party that had never before won a mandate at national level.
Their success mirrors the rise of anti-immigrant parties elsewhere in Europe, and effectively means they hold the balance of power in the Riksdag.
Sweden has been among the most welcoming of European Union countries to immigrants seeking asylum or refugee status. It took in large numbers after the Balkan wars of the 1990s and was a favorite destination for Iraqis after the US invasion.
Immigrants account for 14% of Sweden's population, just above the 12.4% average for northern Europe, according to United Nations figures. Sverigedemokraterna want to curtail immigration and have vocally criticised Muslims and Islam as "un-Swedish".
Reinfeldt: What next?
The Swedish political establishment and mainstream media is abuzz with the question 'what happens next?'
Having previously said that he would not touch the Sweden Democrats with a bargepole, a tough decision confronts returning Prime Minister Fredrik Reinfeldt.
Though he has claimed in the past few weeks that he is prepared to lead a minority government, this option is viewed by many within the Alliance as an excessively weak option for the coalition. Instead, Reinfeldt may approach the opposition Green Party for a political deal.
Speaking on Swedish television, a jubilant Jimmy Åkesson denied that his party was racist, arguing that "we are not against immigrants, but against the failed immigration policy of successive Swedish governments".
He said his party "does not want to cause problems, but wants to take responsibility," adding that Sverigedemokraterna were willing to speak to any party but would only support the Alliance if their signature policy proposals on immigration and crime were adequately addressed.