Butaflika secured 83.5% of the votes, leaving his principal challenger, Ali Bin Flis, far behind with 7.93%.
Bin Flis rejected the result, saying the polls were affected by rampant fraud. He said even former North Korean leader Kim II Sung could not have done better.
Sacked as Butaflika's head of government last May in an acrimonious falling-out, Bin Flis had mounted a serious challenge to Butaflika.
The elections were billed as a watershed for Algerian democracy because for the first time the all-powerful military declared itself neutral in the process.
Electoral laws were also liberalised so party officials would be given vote tallies. About 120 international observers were also on hand.
Butaflika, who was elected under a cloud five years ago in an empty contest after all six of his rivals pulled out alleging fraud, asked supporters at his final campaign rally on Monday to hand him the "crushing victory" needed for a "credible state".
But finishing a poor fourth, contestant Said Sadi described the outcome as grotesque.
But Interior Minister Farid Zarhuni, in announcing the results, rejected the possibility of fraud, arguing that every possible measure was taken to guarantee a free and fair vote.
French President Jacques Chirac and Morocco's King Abd Allah II were among the first to congratulate Butaflika.
President George Bush also sent in his congratulations, as some international observers said the election had been conducted by European standards.