"I know that Iraq has been a deeply divisive issue in this country. But I also know and believe that after this election people want to move on, they want to focus on the future - in Iraq and here," Blair said outside his office just after returning from Buckingham Palace, where Queen Elizabeth II confirmed his election.
His defeated opponent, Conservative Party leader Michael Howard, announced he was stepping down - marking the third straight election to result in the resignation of a Tory leader.
Labour weathered a backlash over the Iraq war, but with a reduced majority that could weaken his mandate and prompt him to step aside earlier than he plans.
Blair already has said he does not intend to lead his party into the next national election, probably four or five years away.
George Galloway ousted Labour
loyalist Oona King
Labour needed at least 324 seats to form a majority in the 646-seat House of Commons. With 624 seats reporting, Labour had 353 seats; the main opposition Conservatives 197; Liberal Democrats 62; and independents and smaller parties 12.
Labour's majority of 161 in the last parliament was slashed by almost 100 seats.
Under the dour but experienced Howard, the Tories added more than 30 seats to their total of 160 in the last parliament, but failed to make an electoral breakthrough.
"I did not achieve what I set out to achieve," Howard told supporters in London, adding that he planned to resign "sooner rather than later".
Howard says he will resign as
soon as a replacement is found
"I want to avoid the uncertainty of prolonged debate about the leadership of the party," he said. "I want the next Conservative leader to have much more time than I had to prepare our party for government."
Blair said being elected for a third term was "a tremendous honor and a privilege". "I'm acutely conscious of that honour and that privilege," he said.
Blair promised "a radical programme of legislation" that will focus on education, health, welfare reform, immigration and law and order - all issues highlighted by Conservatives during the campaign. The government's third term legislative programme will be announced by the queen at the state opening of Parliament on 17 May.
British voters are "tolerant and decent" and did not want to see immigration as a partisan election issue, Blair said. "But they do believe that there are real problems in our immigration and asylum system, and they expect us to sort them out, and we will do so."
Blair faced strong criticism over
his support for the Iraq war
He said one of his priorities will be to promote a renewed sense of respect among people.
"I want to make this a particular priority for this government - how we bring back a proper sense of respect in our schools, in our communities, in our towns, in our villages," he said.
Blair has said this election is his last, and the slip in Labour's lead heightened speculation that he might step down at midterm.
His cabinet colleague and rival, Treasury chief Gordon Brown, played a prominent role in this election campaign which enhanced his status as Blair's likely successor.
"On these results I would have thought, not Gordon Brown himself but the Brown supporters will be wondering how quickly they can move Tony Blair out of Downing Street," said former Conservative minister Michael Portillo.
"The key factor in the campaign was that this time Tony Blair was not an electoral asset. He was becoming a liability."
Gordon Brown is seen as Blair's
most likely successor
Nevertheless, it was a historic victory for Blair and his party - the first time a Labour government has won three straight elections.
"When I stood here first eight years ago, I was a lot younger but also a lot less experienced," Blair said outside Downing Street.
"Today, as well as having in our minds the priorities the people want, we, I, the government has the experience and the knowledge as well as the determination and the commitment to deliver them."
Economy strong point
The BBC had projected Labour would win 66 more seats than all the other parties combined. Sky News put the Labour majority at 64 seats. Results in 610 constituencies showed a turnout of more than 61% of the electorate, up 2% from 2001's record low.
Official results for the remaining seats were expected to trickle in through the weekend.
Labour's strong economic record - Britain's growth is high and unemployment low compared with much of the rest of the European Union - appears to have outweighed the resentment over Iraq. Labour is also credited with improving public services such as health and education through investment.
But Labour's slim margin of victory could have consequences for Britain's relationship with the United States. The battering Blair took over Iraq during the campaign suggested that any future British leader will probably be wary of backing Washington militarily in the face of hostile domestic opinion.
"One of the conclusions of this is that he (Blair) certainly does not have a mandate to launch another war along with George Bush," said Robin Cook, who resigned from Blair's cabinet in protest to the war.
Iraq cost the seat of Blair loyalist Oona King, defeated after a bitter battle in her London constituency by anti-war rebel George Galloway.
Galloway, a veteran Labour legislator kicked out of the party after he urged British soldiers not to fight in Iraq, overturned King's 10,000-vote majority in Bethnal Green and Bow, where almost half the voters are Muslim.
"Mr Blair, this is for Iraq," said Galloway, who ran for the anti-war party Respect. "All the people you killed, all the lies you told, have come back to haunt you."