Paul Martin, who used to be the finance minister in Chrétien’s cabinet easily won the race with 91% of the vote compared to 8% for Heritage Minister Sheila Copps.
Martin will now most likely be elected leader of the governing Liberal party in November and will replace Jean Chrétien when he retires as prime minister next February.
"This is just beyond belief ... this is the result of all the hard work that all of you have put in," Martin told his aides by telephone in a scene captured by CBC television.
Martin is described as a fiscal conservative but is said to share Chrétien’s progressive ideology of gay-rights, a recent hot-topic in Canada. He has promised to improve cool relations with Washington by signing up for the missile defence programme. Critics say it would turn North America into a fortress.
But Copps said she would not drop out of the race.
"The status quo is not good enough. I've run a very vigorous campaign with a whole lot of people who believe in my vision of Canada and I owe it to them to put forward that vision on November 15," she said.
The Canadian government seems to be in the embarrassing position of having two leaders at once. Prime Minister Chrétien is to retire in February 2004, but has refused to step down earlier.
Chrétien and Martin engulfed their party in a public row which saw Martin leave the Cabinet in June.
But the fractured nature of Canada’s opposition parties suggests that Martin will lead the Liberal party to another majority government when elections are announced.
Chrétien defeated Martin in a 1990 leadership race and led the party to national election victories in 1993, 1997 and 2000.