The conservative Justice and Development Party (AKP) won 57 of 81 cities in Sunday's polls, including the capital and the commercial hub Istanbul.
It's overall support rose to about 43% from 34% in 2002 general elections.
Financial markets welcomed the results as confirming Turkey's new-found political and economic stability. The main Istanbul share index was up 2.04% at 21,261.28 points in afternoon trade on Monday, near its historic highs.
"Erdogan has won more leverage with these results, especially in the Cyprus talks. Before the elections there had been talk of a nationalist backlash over Cyprus but this did not happen," one Ankara-based Western diplomat told Reuters.
Turkish nationalists - including parts of the powerful military which distrusts the AKP on account of its Islamist roots - fear Erdogan plans a "sellout" of the minority Turkish Cypriots before Cyprus joins the EU on 1 May.
"The local election results allow Erdogan to tell the Greek side: 'I have the people behind me. These are the concessions I am prepared to make, but no more'," said Huseyin Bagci of Ankara's Middle East Technical University.
AKP supporters rejoice at
Erdogan was due later on Monday to join Cyprus reunification talks in the Swiss Alpine resort of Buergenstock. UN Secretary-General Kofi Annan has given the feuding Greek and Turkish Cypriots a three-day deadline to strike a peace deal.
"Erdogan wants a deal, but that does not mean he will accept any price," said the Western diplomat.
Turkey's own EU ambitions are closely tied up with Cyprus's fate.
Without a peace deal, only the internationally recognised Greek Cypriot government will join the EU in May, possibly cementing the island's ethnic division and damaging Ankara's hopes of starting entry talks with the bloc in early 2005.
"The EU has a political party in the AKP which is stable, accountable and reliable"
Ankara's Middle East Technical University
Analysts said they expect the AKP government to press ahead now with more sensitive reforms, including the abolition of state security courts and removal of military representatives from the higher education board, in line with EU wishes.
"The EU has a political party in the AKP which is stable, accountable and reliable," said Bagci.
But the EU remains concerned that not all of Turkey's reforms are being fully implemented, mainly due to resistance at the local level from conservative-minded bureaucrats.
Secular political system
And some army generals, judges and other members of Turkey's so-called 'deep state' suspect the AKP of using the EU as a cover to chip away at Turkey's secular political system and bring in Islamic changes, for example in education.
"They will have been alarmed by the scale of the AKP win. For Erdogan the balancing act is not over," said the Western diplomat, referring to his need not to upset the army, which forced a government out of office as recently as 1997.
Dogu Ergil of Ankara University played down the possibility of the AKP adopting a more Islamist stance after the polls.
"The leadership will not allow this because they see moderate policies bring them more votes," he said.