Reinfeldt and the opposition bloc led by his Moderate Party had a narrow lead over Goran Persson, the Social Democrat prime minister, and his Green and Left Party allies, incomplete results on the Election Commission website showed.

Taking the stage with his arms raised, a triumphant Reinfeldt told supporters: "The Swedish people have voted in an alliance government."

Swedes, who were electing 349 members of parliament, have one of the world's highest tax burdens. Many of them believe in the principle of a tightly woven social safety net but say the system needs reform.

Welfare reform

The election was closely watched by governments of other European countries facing the need of welfare reform because of ageing populations and creaking pension and healthcare systems.

Despite Sweden's strong economic performance under the Social Democrats, opinion polls before the vote had shown many voters favoured change in the Scandinavian country of just over 9 million people.

The Moderate Party was crushed at the last election in 2002 but 41-year-old Reinfeldt enhanced his party's appeal by shifting it towards the centre and paring down earlier tax and benefit cut promises.

He leads an alliance with the Folk Liberals, Christian Democrats and Centre Party that says years of excessive benefits and high taxes have eroded Swedes' will to work.


Reinfeldt says changes are necessary now to preserve the welfare system for the future.

Reinfeldt intends to sell off some 200 billion Swedish crowns ($27.6 billion) worth of state-owned shares in listed companies over four years. His privatisation push could include government holdings in bank Nordea, telecoms company TeliaSonera and airline SAS.

Reinfeldt favours Nato entry, if there is broad agreement on the issue. He wants Sweden more involved in the EU but has no plans to hold a referendum on the euro currency in the next four years. Swedes rejected adopting the euro in 2003.