Mugabe's ZANU-PF crossed a key threshold by taking 51 out of the 120 seats being contested - guaranteeing it a simple majority in the 150-seat parliament where 30 additional members are by law Mugabe appointees.
Morgan Tsvangirai's Movement for Democratic Change (MDC) had 33 of the 84 seats declared, its earlier lead demolished by a strong ZANU-PF showing in rural districts.
Britain joined an international chorus condemning the poll, saying the 81-year-old Mugabe had cheated voters and prolonged a crisis that has brought the once-prosperous country to its knees.
Tsvangirai hinted his supporters might take to the streets to express outrage, saying the party had given up on legal challenges after unsuccessfully battling results in 2000 and 2002 it claimed also were rigged.
"We believe the people of Zimbabwe must defend their votes, their right to a free and a fair election ... this is what has been denied," he told supporters in Harare.
Tsvangirai, who has accused Mugabe of using repressive laws, political threats and access to food supplies to engineer a victory, said the MDC had noted everything from intimidation to thousands of extra votes cast in battleground constituencies.
Ten percent to 25 percent of voters
were turned away, say observers
Party rejects accusations
ZANU-PF officials rejected the accusations, saying the polls were run by the Zimbabwe Electoral Commission set up this year as part of a package of democratic reforms.
"If they say there was fraud, where were their polling agents when it was being done?" ZANU-PF elections director Elliott Manyika said.
Thursday's voting was peaceful in all the country's 10 provinces, in contrast to Zimbabwe's last two polls, which were marked by bloodshed and widespread charges of overt fraud and intimidation.
The ruling party's surge had been expected despite early urban returns favouring the MDC, which emerged from the labour movement and draws strong support among urban workers.
Mugabe has said ZANU-PF aims to win a two-thirds majority, which would give it the power to change the constitution and cement its hold on power before his expected retirement in 2008.
At the MDC regional headquarters in the second city of Bulawayo, early optimism gave way to despondency as ZANU-PF racked up victories in its rural strongholds.
"We are extremely disappointed by the results as they have come out. As we have always complained, it is very clear to us that this is yet another stolen election," MDC Secretary-General Welshman Ncube told Reuters.
Former colonial master
Britain, Zimbabwe's former colonial master and frequent critic of Mugabe, joined Western powers including the United States, the European Union, Germany and Australia which have already labelled the poll a travesty.
"Mugabe has yet again denied ordinary Zimbabweans a free and fair opportunity to vote, further prolonging the political and economic crisis he has inflicted on their country," Foreign Minister Jack Straw said in a statement.
"Some say this is about Africa versus the West. It is not. It is about democracy versus dictatorship," he said.
Voter turnout calculated from official figures was about 42 percent, compared with 48 percent in the last poll in 2000.
The MDC accuses Mugabe of wrecking a once prosperous economy through mismanagement that triggered rocketing inflation, high unemployment and food shortages.
ZANU-PF suffered a high-profile defeat as Speaker of Parliament Emmerson Mnangagwa, once tipped as Mugabe's preferred successor but sidelined in a power struggle, lost a contest with the same MDC candidate who beat him five years ago.
But Mugabe's nephew Patrick Zhuwao took the constituency of Manyame near Harare, walloping the MDC candidate by 15,448 votes to 8,312, immediately sparking accusations of ballot rigging.
A total of 5.78 million of Zimbabwe's 12.6 million people were registered to vote, but critics say the number was inflated by about 1 million "ghost voters" to boost ZANU-PF.