The party needed 15 more seats to gain control of the House and six for the Senate. At present they have won control of about 30 House seats and four Senate seats, along with 20 out of the 36 governorships in the race.
The Democrats also lead currently in races for two more Senate seats in Montana and Virginia, early reports indicate.
A victory in both seats would mean the Democratic party would take control of both chambers of US Congress for the first time in 12 years.
In Montana, Jon Tester, the Democratic candidate, also held a narrow lead on rival Conrad Burns, but a final result was not expected until later on Wednesday.
A potential recount and possible legal challenges in Virginia could delay the final result, although James Webb, the Democrat senate candidate, had an 8,000-vote advantage over his Republican challenger, George Allen, Reuters news agency reported.
The huge victory reflects widepread voter discontent over the war in Iraq, corruption and George Bush's leadership.
John McCain, the prominent Republican senator, called the results a "wake-up call" for his party.
Democrats managed to beat Rick Santorum, the third-ranking Republican in the Senate and one of the Democrats' biggest targets this year.
Joe Lieberman, who lost the Democratic nomination for the US Senate seat in Connecticut, won after standing as an independent candidate.
In Minnesota, Keith Ellison became the first Muslim elected to Congress in US history, while Hillary Clinton easily beat her Republican rival to claim a second term in the Senate, further spurring expectations of a 2008 presidential run.
"We believe in our country and we're going to take it back, starting tonight!" the former First Lady told her supporters in New York.
Nancy Pelosi, the House minority leader poised to become the first female speaker of the House, said the results indicated that the Americans were dissatisfied with their current government.
"The American people voted for change and they voted for Democrats to take their country in a new direction, and that is exactly what we intend to do," Pelosi said in Washington on Tuesday evening.
"The American people voted for change and they voted for Democrats to take their country in a new direction"
Nancy Pelosi, Democrat and House minority leader
However, Pelosi said the Democrats would not prove a divisive force in Congress.
"Democrats promise to work together in a bipartisan way for all Americans."
Bush has called a White House news conference for Wednesday, as Tony Show, the White House spokesman, said the Bush administration would work with the Democrats.
"We believe [the] Democrats will have control of the House, and look forward to working with Democratic leaders on the issues that remain foremost on the agenda, including winning the war in Iraq and the broader war on terror and keeping the economy on a growth path," he said.