Romano Prodi's centre-left coalition has won 158 seats against his rival Silvio Berlusconi's 156 in the Italian Senate, according to the final count.
Officials confirmed the tally this evening after media predictions of a one or two-seat majority in the upper house.
Centre-left challenger Romano Prodi earlier claimed victory today over Premier Silvio Berlusconi in parliamentary elections and said he would form a "strong" government even though the official vote count was not completed.
Mr Prodi's tiny margin raised fears of political paralysis and his rival's allies refused to concede defeat.
Mr Berlusconi's camp called for a recount in the lower Chamber of Deputies, where final results gave Prodi's coalition a razor-thin margin of just one-tenth of one per cent.
The Prodi alliance won narrowly in the lower house and Sky Italia TV projected that it would have a a majority of one or two seats in the upper house Senate thanks to votes of Italians abroad that were still being counted.
"We can govern for five years," Mr Prodi told reporters. "My government will be politically and technically strong."
The former European Union commissioner also said his government would put Europe at the centre of its policies. "This is a profoundly European result, and as I said, Europe will be the centre of the policy of my government," Mr Prodi said, while also promising "constructive relations with the United States".
However, his victory in the Senate was still not official more than 24 hours after polls closed. Even a partial recount would delay a definitive verdict and with it Italy's prospects of reviving its stagnant economy.
And his margin in the lower house Chamber of Deputies was so slim that the centre-right demanded a review of the count, raising the prospect of a lengthy wait before a final outcome.
In the lower house, Mr Prodi 's winning margin was around 25,000 votes, a minuscule fraction of the 47 million eligible electors. Final Senate results are expected later today.
Under Italy's new electoral system, Mr Prodi 's coalition was awarded 341 of the lower house's 630 seats despite its margin of victory of under 0.1 percent. Mr Berlusconi's alliance was awarded 277, with 12 overseas seats yet to be allocated.
Markets worried that Prodi would be a lame duck premier, unable to enact reforms, cut Italy's debt or tackle its budget deficit. Milan's stock market fell and the cost of government borrowing rose over concern about the political uncertainty.
Mr Prodi said he was awaiting a phone call from Berlusconi to concede defeat, "because this is what happens in modern democracies".
But Mr Berlusconi, who wrong-footed his opponents with a last minute pledge to scrap a property tax, stayed out of sight while his allies demanded checks on half a million spoilt ballots.
Mr Prodi said he wasn't concerned about the recount call from the Berlusconi camp and conceded his margin was thin. But he said previous governments had been weaker.
Under Italian electoral law, 55 per cent of seats are awarded to the overall winner regardless of the scale of victory, giving Mr Prodi's forces 340 seats in the 630-member lower house.
Mr Berlusconi (69), Italy's longest-serving premier since the Second World War, was battling to capture his third term with an often squabbling coalition of his Forza Italia party, the former neo-fascist National Alliance, pro-Vatican forces and the anti-immigrant Northern League.
Mr Prodi (66), a former premier and EU commissioner, was making his comeback bid with a potentially unwieldy coalition of moderate Christian Democrats, Greens, liberals, former Communists and Communists.
If parliament is split between the two coalitions, President Carlo Azeglio Ciampi could try to name a government of technocrats at least until another election. He could also seek to fashion a coalition of left and right, but considering the bitter divisions among Italy's political parties, that seemed unlikely.
There is no clear provision in the Italian constitution to deal with a split parliament, and there are no precedents.